- USD / JPY is struggling to gain significant traction and remains trapped within a range.
- Political uncertainty in the US keeps USD bulls on the defensive and limits the pair’s rally.
- Market optimism weighs on the safe-haven JPY and could help limit the pair’s deeper losses.
The pair USD / JPY lacks a firm directional bias and remains trapped within a range during the European session on Tuesday. At the time of writing, the pair recovers from an initial drop to the 104.50 region and is trading virtually unchanged on the day around the 104.70 level, although it lacks a strong continuation in either direction.
A combination of divergent factors has failed to provide a significant boost to the pair and has led to moderate and limited price movements within a range during the first half of the commercial action. Despite concerns about the potential economic consequences of coronavirus-induced lockdowns in Western countries, bullish market sentiment has weighed on the safe-haven Japanese yen and it has helped limit the decline in the USD / JPY pair.
On the other hand, US dollar bulls have refrained from opening new positions and prefer to wait on the sidelines amid uncertainty about the outcome of the US presidential election. Opinion polls have been indicating a advantage for Democratic candidate Joe Biden. However, investors have refrained from betting on a particular outcome as the difference in key battlefield states is very tight. This, in turn, has limited any significant rally for the USD / JPY pair.
From a technical perspective, the pair failed ahead of the key psychological level of 105.00 on Monday. The subsequent pullback suggests that the recent bounce from near the 104.00 level, at a month-long lows, may have lost momentum, warranting some caution for the bulls.
That being said, it will be wise to wait for some solid continuation selling before investors start to position themselves again for the resumption of the short-term bearish move. On the other hand, sustained force beyond the 105.00 level will nullify the bearish outlook and pave the way for further gains, possibly towards the 105.50-60 resistance zone.
Credits: Forex Street
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