- USD / JPY draws some buying near the 105.00 level and is closing in on multi-week highs again.
- Concerns about the increase in the number of COVID-19 cases in the US prevents the USD bulls from opening new positions.
- A sustained move above the downtrend line is needed to support the prospects for additional gains.
The pair USD/JPY maintains its modest daily gains at the start of the American session on Wednesday, although appears to be struggling to extend momentum above the 105.50 region.
A combination of supporting factors has helped the pair to attract some buying near the key psychological level of 105.00 and has again approached the three-week highs set on Monday. The latest optimism about a possible vaccine for COVID-19 has continued to support market optimism. The flow of risk appetite has weighed on demand for the safe-haven Japanese yen and it has helped the USD / JPY pair gain some traction.
Further, a good recovery in US dollar demand, led by strong selling in the euro and sterling, has provided additional momentum and continued to support the rally in the USD / JPY pair. However, concerns about the economic consequences of the continued rise in new cases of coronavirus in the United States have prevented dollar bulls from opening aggressive positions. and they have limited any uncontrolled upward movement in the pair.
Meanwhile, the imposition of stricter restrictions in several US states it appears to have revived hopes for additional US fiscal stimulus measures to support the economy. This could further help limit the rise in the dollar. This makes it prudent to wait for some solid continuation buying before investors start to position themselves for any further short-term bullish movement for the USD / JPY pair.
From a technical perspective, the pair remains close to the resistance of a multi-month-old downtrend line. A sustained move above this resistance zone will be seen as a new catalyst for the bulls and will set the stage for an extension of this week’s strong bounce from around the 103.00 level, close to the eight-month lows tested on Monday.
Credits: Forex Street
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