The dollar / yen is trading slightly lower on Thursday as investors continue to weigh the hopes of the coronavirus vaccine on the possibility of another fiscal stimulus from the government.
A successful vaccination launch could help accelerate the economic recovery in the United States, but not before the economy goes down due to a lack of new stimulants. One-week side price action suggests Dollar / Yen traders are betting on both sides of the equation without any real strong bias at this time.
At 10:32 GMT, USD / JPY is trading 104.306, down 0.113 or -0.11%.
Technically, the main trend is up, but momentum is down. This helps to keep the Forex pair in a trading range. The main range is from 103.177 to 105.677. USD / JPY has straddled its retracement area at 104.427 to 104.132 since mid-November.
An upward bias could develop on a sustained move above 104.427, and a downward bias could develop on a sustained move below 104.132.
Risk appetite supports the dollar against the yen
Risk appetite is fueled by optimism about recent developments towards the deployment of COVID-19 vaccines. This drives the US dollar against riskier currencies, but provides support against the Japanese yen.
New stimulus measures favor the yen against the dollar
“Additional fiscal stimulus before the new President Joe Biden takes office would reduce the current downside risks to the economy and therefore mainly fuel inflation expectations, which will weaken the dollar in view of expansionary monetary policy targets long term of the Fed, ”the Commerzbank wrote. FX strategist Esther Reichelt in a note to clients.
The two problems offset each other, leading to sideways trading.
Japanese service sector struggles to recover from COVID-19 resurgence: PMI
In economic news, activity in Japan’s service sector continued to weaken in November, a private sector survey showed, as a resurgence of coronavirus infections weighed on new business and business conditions. employment.
Jibun Bank Japan’s final Service Purchasing Managers (PMI) index was little changed from the October reading, falling from 47.8 to 47.8 seasonally adjusted. Although the end result was better than a preliminary reading of 46.7, the overall index remained firmly in contraction territory below the neutral level of 50.
The world’s third-largest economy is gradually recovering from a virus-induced crisis earlier this year, but it would be years before it returns to pre-pandemic levels, especially in the service sector, which contributes nearly 70% of its gross domestic product.
We expect more sideways price action with USD / JPY continuing to straddle 104,427 to 104,132. We are unlikely to stray much from this area unless the stimulus bill starts to gain traction. In this case, the dollar would likely weaken.