The dollar/yen pair continues to show a downward movement, despite the corrective upward pullbacks: USD/JPY bears express their willingness to consolidate around the 102nd mark, confirming the strength of the bearish mood. This is supported by a new round of COVID-19 panic amid the US dollar's general weakness. On the other hand, the yen regains its status as the main defensive instrument with all the ensuing consequences. If the dollar was the key beneficiary of the coronavirus crisis last year, then today, the situation has changed. The greenback is currently behaving quite modestly, despite the rise in anti-risk sentiment. The US dollar index remains below the level of 0.90, reflecting the market's skepticism towards the US currency. In connection to this, short-term corrective surges can be ignored, given the inability of dollar bulls to hold on to the reclaimed price heights.
All this suggests that the rising panic in the market is in the hands of the USD/JPY sellers. Figuratively speaking, the US dollar is still in reserve, so the yen will make the first move in the pair, which will determine the price movement depending on the demand for anti-risk assets. In turn, this demand will depend on the level of anti-risk sentiment.
The main topic for traders in the currency market is the global spread of COVID-19 again, surpassing macroeconomic reports and/or comments by Central Bank officials. Generally, market participants are not interested in medical reports, but in the reaction of the authorities to these reports. The epidemiological situation remained difficult in key countries at the end of last year, but this factor was leveled out by the vaccine. Last month, the vaccination process started in the US, UK and 22 other countries. Traders saw hope while ignoring medical reports relating to the rising number of cases amid the emergence of a new strain of coronavirus in the UK.
However, market's optimism slightly faded as 2021 began. First, the process of vaccination is quite slow, which is complicated by several factors at once. The overall demand is still significantly higher than supply (pharmaceutical giants cannot meet existing demands at the same time), and many countries have problems with logistics and storage of drugs (especially if we are talking about a vaccine from Pfizer vaccine, which requires an extremely low temperature, -70). In addition, even if the above problems are resolved, vaccination will not be able to finish the pandemic in one moment. So far, we are talking about protecting those people who are at risk. The vaccine will be available to the general population only in a few months. For example, Israel is now ahead of everyone in the world in terms of vaccination rates – it has already introduced more than 1 million doses of the drug, but only 11% of the population was vaccinated. Other countries (where vaccination has already started) are not even close to this figure.
Meanwhile, the COVID-19 continues to persist, forcing those in power to either extend the existing lockdowns or tighten quarantine restrictions. In Israel, the head of government warned that the cabinet of ministers would consider the possibility of introducing short-term, but even stricter quarantine measures to stop the spread of COVID-19 despite the shocking rate of vaccination.
The situation remains difficult in the UK: Prime Minister Boris Johnson announced new quarantine measures yesterday, which will take effect throughout England starting today. In general, London decided to repeat the scenario last March – it is only possible to leave the house for no more than an hour a day and for strictly specified purposes only: for example, to exercise, buy groceries and essentials, or assistance. At the same time, Johnson warned UK residents that things will be difficult for the country. In relation to which, the number of daily cases since the beginning of the year does not fall below the 50,000 mark, and this indicator has set historical anti-records recently. Yesterday, more than 58 thousand new cases were recorded. According to scientists, the fault is a new strain of the virus, which is more contagious, and which is actively spreading across the country.
In Germany, it was decided to extend the strict quarantine. The lockdown was supposed to end on January 10th, but the current epidemiological situation does not allow it. Based on preliminary data, Germany will be quarantined until at least until the 31st.
The Japanese authorities are also seriously pondering over further actions to combat the pandemic. Amid a sharp surge in the number of infected, the country's authorities announced yesterday that a state of emergency could be declared in the capital, suburbs and some prefectures.
Similar trends are more or less observed in many other countries of the world. All this allows the USD/JPY bears to rely on the continuation of the downward trend. For at least the last two weeks, the market used any corrective upward pullback as an excuse to open sell orders. Currently, there is a positional struggle for the 102.00 mark, so it is advisable to open short positions when consolidating below 102.80 – lower line of the Bollinger Bands indicator on the daily chart. The nearest downward target is 102.50 (lower line of the Bollinger Bands on the weekly chart), while the main target is the round level of 102.00, which will act as a strong support level.
