- USD / JPY has rallied back above the 113.00 level on Monday.
- Positive news from Omicron weighs on demand for underperforming and safe haven currencies.
The USD/JPY It moved modestly higher on Monday but continues to trade below its 50-day moving averages at 113.43, which has acted as a cap on price action since the beginning of the month. The pair rebounded on Monday from near the lows near 112.50 last Friday and is now trading comfortable returning above 113.00 at 113.10, with daily gains of around 0.3%.
According to market commentators, the pair is being supported by positive Omicron-related news weighing on underperforming and safe-haven currencies (such as the yen) that have recently benefited from the idea that Omicron would hurt the global economy. According to South African health officials, the severity of most symptoms in hospitalized Omicron patients (including infants) has so far been mild. But the variant is known to be highly communicable, and it remains to be seen to what extent health authorities in countries like the US, UK and Europe panic when infection rates inevitably accelerate dramatically in the coming weeks. The risk of an overreaction to high infection rates (which does not take into account mild symptoms and low hospitalizations) is a risk to the short-term economic outlook.
For now, the continued uncertainty about how the next few weeks and months will play out in regards to the Omicron spread and the reaction to it appears to be enough to keep USD / JPY gains limited. This is primarily due to the fact that long-term US government bond yields (US / Japan rate spreads are the most important driver for USD / JPY) remain subdued and close. to recent lows. One factor limiting longer-term yields, in addition to concerns over Ómicron, are apparent fears that the Fed’s enthusiasm to press ahead with monetary tightening in 2022 to control inflation despite pandemic risks could hold back the longer-term economic outlook.
For USD / JPY to break above the 50 DMA and continue towards the 21 DMA just below 114.00 and then recent highs at the 115.50 zone, and above that level long-term US yields will need to recuperate. In a scenario where US states respond to rising infection rates (driven in part by Omicron) with tighter economic measures, this could further affect long-term yields. Between 112.50 and 112.00 there are many key support levels dating back to April 2019, but if they break that could open the door for a quick move lower towards 109.00, the next key support area.
Additional technical levels
.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
