The USD / JPY bulls look for a breakout of the daily resistance trend line.
- The bears are looking for a benign Jackson Hole that could see a lower US dollar.
USD / JPY is trading between a range of 109.41-109.88 on Tuesday in the countdown to Jackson Hole that begins this Thursday.
The US dollar is on standby and see, licking its wounds after falling to a critical low of 92.80.
Risk appetite in global markets has started to pick up, which is a potential headwind for both the yen and the US dollar relative to their safe haven status.
The msci global equity index, IACWI, which tracks stocks in 50 countries, rose another 0.54% after a 1.1% gain at the beginning of the week, leaving it on track to recover to new highs.
Investors in the United States have applauded the news that the US Food and Drug Administration had granted full approval to the COVID-19 vaccine developed by Pfizer and BioNTech.
This is expected to speed up inoculations in the US.
It was a move that has sent both the NASDAQ index and the S&P 500 index to new all-time highs with the Dow following more closely behind them.
However, Jackson Hole is an event traders are waiting in high anticipation that could put a hiatus from the rise in stocks, potentially propping up safe havens for the meantime.
The latest minutes from the July Federal Open Market Committee meeting showed that most attendees said it might be appropriate to start reducing asset purchases this year.
The Jackson Hole is an event that could be used by Fed Chairman Jerome Powell to announce the times of when this will happen.
Equity investors historically have not liked that the Fed has cut bonds.
Going back to May 22, 2013, an event dubbed the “Taper Tantrum,” when then-Fed Chairman Ben Bernanke testified before Congress that the Fed may downsize its bond buying program known as easing. Quantitative (QE), the S&P 500 fell 3% over the course of just two sessions.
The S&P 500 fell another 4.5% before the end of the month and the yen rallied against the USD by 9.5%.
However, this time around, investors see the US economic recovery as far more bizarre than other nations, such as Japan, which have seen a recent resurgence of the coronavirus in the form of a highly contagious variant of the Delta.
This has fueled concerns about recovering from the global health crisis.
However, markets have largely looked beyond this so far this week, with analysts citing poor liquidity as a factor driving apparent swings in risk appetite.
So it’s a matter of waiting and seeing what Powell will have to say in his keynote address Friday at Jackson Hole.
USD / JPY technical analysis
From a daily time frame perspective, the price could be on the verge of a downside extension below the dynamic resistance of the trend line.
However, a breakout of which would likely see the pair rally at 111 in the near term to challenge the July highs near 111.65.
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