The Japanese currency is gradually losing its position throughout the market, amid increasing risk sentiment among traders. When paired with the dollar, the yen returned to the area of the 106th figure, but can not overcome the local resistance level of 106.50. However, these are temporary obstacles for USD/JPY buyers, judging by the dynamics of other defensive tools. The yen reacts not only to external sentiment, but also to the dollar's behavior, which was under pressure yesterday due to conflicting macroeconomic reports (a record deterioration in consumer sentiment amid the growth of the real estate market). If Federal Reserve Chairman Jerome Powell does not disappoint the dollar bulls in Jackson Hole tomorrow, the USD/JPY pair will not only break the 106.50 mark, but also settle in the area of the 107th figure. At the moment, the yen does not have its own arguments for organizing counterattacks.
Take note that many fundamental factors, which provoked surges in anti-risk sentiment a few months ago, currently affect the market differently. This is primarily about the coronavirus. The number of cases around the world is still increasing, but the focus of traders' attention has shifted to the question of creating a vaccine or drug against COVID-19. It should be noted that around a hundred relevant drugs are currently being developed around the world, which are at various stages of testing. The latest news from this "front" put pressure on the yen, as it provoked interest in risky currencies.
The Swedish-British pharmaceutical company AstraZeneca has begun human trials of a drug against coronavirus in the UK. Clinical trials will be conducted on 10,000 volunteers in the UK and 10,000 people in Brazil and South Africa. More than fifty volunteers in the UK, aged 18 to 55, have already received a dose of the new drug. In the United States, a permission has been issued to use the blood plasma of recovered patients for the treatment of patients with COVID-19. Take note that, according to many experts, the effectiveness of such treatment has not yet been confirmed by clinical trials. Nevertheless, US President Donald Trump presented this news as "a breakthrough in the fight against coronavirus," so the market ignored the skeptical comments of the expert community.
In other words, the market did not focus on the rate of increase in the number of cases of coronavirus, but on news regarding the development of a drug or vaccine against COVID-19. The yen was left out of business here, as the coronavirus factor temporarily lost its negative aura. Local outbreaks (for example, in the Australian state of Victoria) have a local impact (in this case, on the Australian dollar), while defensive assets ignore such news.
The sluggish US-China conflict also doesn't bother traders much. The situation here is generally extremely ambiguous. On the one hand, Trump promises all kinds of punishments, new duties and a break in economic relations with China. At the same time, the market is receiving information that the US and China have announced the progress of the trade deal. As stated in the official press release of the US trade negotiator Robert Lighthizer, "Washington and Beijing have noted progress in the implementation of the first phase of the China-US trade deal and announced their readiness to take the next steps."
Such a dissonance did not play in favor of defensive instruments (including the yen). Everyone understands perfectly well that the United States is in the midst of the election campaign, so all the statements of the main candidates (both Trump and Joe Biden) should be viewed through the prism of this factor. Of course, political relations between the United States and China are far from ideal, but, as we can see, consultations on trade issues are taking place in a very friendly atmosphere. This fact also made it possible for USD/JPY bulls to develop an upward attack.
The German data also provided indirect support to the pair's buyers. The IFO Institute, which polls nearly 10,000 companies every month and calculates the business sentiment index, published a fairly optimistic report yesterday. According to them, Europe's largest economy has weathered the peak of the pandemic better than previously thought, and German businesses believe in a quick recovery and a return to "pre-crisis times." The indicator of the business environment in Germany rose to 92.6 points in July, the indicator for assessing the current situation - up to 87.9 points. Both indicators have been growing consistently for four months in a row. The final estimate of the growth of the German economy for the second quarter was also published yesterday. This figure was unexpectedly revised upwards.
Thus, the overall fundamental background does not allow the yen to seize the initiative on the USD/JPY pair in order to bring the price back to last week's lows (that is, to the level of 105.10). On the other hand, the dollar is showing vulnerability ahead of Powell's speech at the Jackson Hole Economic Symposium tomorrow. Therefore, the pair is unlikely to leave the area of the 106th figure in the short term - the price is stuck between the support level of 106.00 (the middle line of the Bollinger Bands indicator on the daily chart) and the resistance level of 107.05 (the upper line of the Bollinger Bands, coinciding with the lower border of the Kumo cloud on the same timeframe). Selling and buying can be seen, respectively, from the lower and upper boundaries of the specified price range.
