Any upward move may not last

THE USDJPY has been bound up in a sideways range for the last two years since 2017, with the price moving consistently between a high of 114.50 to a low of 104.50. At the point of writing, USDJPY is at 106.28 after bouncing off the 104.50 support level. Following which, the USDJPY is showing slight signs of some upside with immediate resistances at 106.70 and 107.60. However, it is of our view that any upward moves for the USDJPY may not last.

Various factors could hint to this, with the most prevalent being the pessimistic state of the market in recent days.

Most investors would agree that there is a gloomy cloud of uncertainty and fear dominating the markets which is contributing to a strong risk-off sentiment wafting in the air. The clearest sign of this can be seen from the meteoric rise in gold prices which seem set to be rocketing towards US$1,600 per troy ounce.

The Japanese yen, long regarded as a safe-haven instrument, has also seen signs of investors flocking to it. A dysfunctional political climate would also be seen by the man on the street as the chief culprit for this fear-induced safe-haven buying attitude, with most citing the US-China trade tensions as the main impetus.

From the daily charts, we can see that the USDJPY has been gradually sliding downwards since the start of the second quarter of the year. This is in part due to the US-China trade conflicts causing cautious investors to divest from the US dollar and to buy into the Japanese yen.

Though the USDJPY has seen a slight recovery following the bounce off the 104.50 support level, this does not mean that it would be able to enjoy the highs of the range, which is around 114.50, anytime soon. Based on the weekly charts, the USDJPY has tested the 104.50 level several times before, with the most recent being on the last day of 2018.

Subsequently, the USDJPY did enjoy some reprieve. However, it was nowhere close to the high of the range. If we were to examine the current situation of the USDJPY, we expect to see the price testing and rejecting the next resistance at around 107.50 before heading down to test the lower band of the range. This level is based on previous support and resistance levels as well as a 38.2 per cent Fibonacci retracement level taken from the high in June to the low in August this year.

Notwithstanding any positive changes to the world economic and political climate, we could even see the USDJPY test the 101.20 level as the next support.