The news from Pfizer that their coronavirus vaccine is over 90% successful in preventing COVID-19 infections stirred up the markets this Monday, sending risky assets on a surge. Currencies followed suit, with the JPY and CHF the weakest of the major currencies as opposed to the risky AUD, NZD, and CAD, which were the best performers.

 

In our weekly analysis on Monday, we said that the combination of a Biden president and a COVID-19 vaccine couldn’t be better news for risky assets at this time. This game-changing event should firmly reverse the downtrends in JPY and CHF pairs. Our long EURCHF trade from last week is already in profit and should be on its way to the target sooner rather than later.

In line with the risk-on mood, we are turning to the USDJPY pair to look for opportunities to join this trend. The pair is showing convincing signs of a base and has formed a giant bullish candle on the daily chart. It has now hit resistance near the 100-day moving average and stalled. A breakout above here should be the signal that will clear the way for further gains. The situation on the USDCHF pair is very similar and can be traded almost the exact same way. But, for the sake of being brief and concise in our newsletter, below we’ll focus only on the USDJPY pair.
 

It’s also worth mentioning that buying USDJPY should provide better protection against a possible reversal in risk sentiment compared to the more classic risky pairs such as AUDJPY or NZDJPY. In case there is a reversal of sentiment to risk-off, then these currencies will likely nosedive versus the safe-haven JPY. Not so much the USD, which should still fair relatively well.

 

Things to watch that can reverse the risk-on mood are the COVID-19 pandemic, the effectiveness of the vaccine, and the behavior of incumbent US president Donald Trump. For instance, Trump is still refusing to concede the election defeat and is pressing on with legal action to dispute the results. If he succeeds in that, even to a modest extent, it could trigger a risk-off wave across markets. However, that scenario still seems highly unlikely, and the moment when Trump concedes should be the event that gives risk appetite another boost.

The break back above the former support at the 104.50 lows is a powerful bullish signal. It shows that the break below the support was fake, and the tall green candle off the lows additionally confirms the enthusiasm of the bulls here.

 

USDJPY is now knocking on the 5-month resistance trendline that currently stands near the 100-day moving average in the technical zone between 105.50 and 106.00. The strong bullish price action suggests an upside breakout of the trendline is likely. Such a scenario will confirm the bottom at 103.00 and clear the way for upside continuation.

 

The 108.00 area should be reached under this bullish scenario. It is the next most important technical area higher, and considering that there is no strong resistance between it and 106.00, it is a prudent zone to target with long positions.

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