USD/JPY Analysis: The Concentration of $107.7 Support Gives Bullish Signals

The slide of the US Dollar index is primarily based on the rising inflation threat, however, the economic recovery of countries whose currencies are in the basket of DXY has an impact as well.

The BoJ kept the interest rates unchanged, leaving the rates 10 bp below 0. This probably is a result of the rising Covid-19 cases in Japan, where the growing number of new Covid-19 infections redound to new public restrictions and State of Emergency declarations in Tokyo, Kyoto, Osaka, and Hyogo.

The rising Covid-19 cases in the states which held the first waves of Covid-19 pandemic is related to the slower vaccine distribution. Japan has the lowest vaccine distribution compared to other countries, thus the rate is 1.6% only compared to the 49.7% in the UK and 41.8% in the US. The 4-th wave of Covid19 in Japan puts the main question before the Government on whether to hold the Olympics this year or postpone it. The situation in Japan will get worse before it gets better, and further restrictions will be implied, to withhold the virus spread until Japan has enough vaccines rolled-out to stay at least near the 40% level as in the US.

USD/JPY after almost a month-long downtrend is about to end the correction and move upwards. There was a strong concentrated support level at $107.7 which the pair has tested and rebounded.

As seen on the chart above, the support level is pretty solid and signals the end of the correction. MACD already is heading upwards above the signal line, EMA55 is the current MA resistance, though the impulse shows that it will be overtaken soon.

The reason why I call the $107.7 a concentrated support is because there are way too many static and dynamic supports and resistances which turned support at this level. Such concentrated support should never be ignored.

By the time writing of this article USD/JPY on Overbit is traded at $108.4 and is currently testing a very important support area as resistance, if the resistance withholds, USD/JPY will probably drop to test the dynamic support, down to $107.8, if not, there is a high chance that the pair will continue upwards up to $109.2 – $109.3 and beyond if the situation in Japan doesn’t get better.

FED’s press conference could be decisive tomorrow and shift the US Dollar traded currencies, it is clear that the Interest rate will remain unchanged, though key notes from the economic situation, inflation and interest rate forecasts would be essential.