The USDJPY pair edged lower as investors rushed to the Japanese yen, which is often seen as a safe haven. The Japanese yen also rose by more than 0.85% against the British pound and by 40 basis points against the euro. The yen also rose in a day that the Nikkei 225 index declined by more than 2%.
Oil sends shockwaves
The biggest risk in the market was what happened in the energy market. Yesterday, the price of crude oil in the United States started to drop. Ultimately, oil for May deliveries dropped to the negative level for the first time in history. Today, oil for June delivery also dropped below $11. In total, US oil price has dropped by more than 100% while Brent has dropped by more than 80%.
Lower oil prices are usually net positive for the world economy because many companies are importers. However, extremely low oil prices lead to jitters in the market because of the amount of money oil companies have borrowed. If the current price of oil holds, analysts believe that hundreds of small and large oil companies will file for bankruptcy. Such risks are usually positive for the Japanese yen.
Earnings Send a Gloomy Picture
Another main risk that could be driving the USDJPY pair is the earnings season. The season has been disappointing, with most companies warning about the outlook of the year. Yesterday, IBM announced negative results because many companies are withholding cash. Today, companies like Danone, PSA, and SAP warned about earnings hit in this financial year.
Japan Coronavirus Cases Rise
Another factor that could be driving the USD/JPY pair is the current coronavirus cases in Japan. While most countries are reporting falling numbers, those from Japan are increasing. This is mostly because the country was late in isolating people. In fact, the country is still operating without lockdown. This means that the number of people with the disease will likely increase.
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USDJPY Technical Analysis
On the four-hour chart, the USD/JPY pair found a substantial resistance at the 78.6% Fibonacci Retracement level.
This retracement was drawn by joining the highest and lowest parts in March.
The pair then started falling and found support between the 50% and 61.8% retracement level. It has remained between these levels since then.
In addition, the pair is trading below the 50-day and 100-day exponential moving averages and slightly below the blue resistance line shown below.
Therefore, I expect the bearish momentum to remain until the pair retests the previous support of 106.84. A break below this level will be a confirmation of the downward trend.
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