USD/JPY Price Outlook: Dollar-Yen Undermined by Stimulus Hopes

USD/JPY PRICE OUTLOOK: US DOLLAR COULD FALL VS JAPANESE YEN AS FISCAL STIMULUS DEAL STEERS GREENBACK LOWER

• USD/JPY price action oscillates lower after failing to eclipse its 50-day simple moving average
• US Dollar selling pressure accelerates on the back of renewed optimism for a stimulus deal
• The Dollar-Yen could extend its slide with the DXY Index breaking below key technical support

The US Dollar has faced heavy selling pressure throughout Tuesday’s trading session. Broad-based US Dollar weakness has weighed negatively on the DXY Index and just pushed the benchmark below a major support zone. USD downside largely follows rekindled fiscal stimulus optimism after Democratic House Speaker Nancy Pelosi conveyed an upbeat tone earlier today on the possibility that a coronavirus aid package can be reached before the November 2020 election.

Pelosi, who will speak with Treasury Secretary Steven Mnuchin again this afternoon in an attempt to finalize legislative text, stated that the Trump administration has ‘come a long way toward reaching an agreement.’ Reinvigorated fiscal stimulus hopes thanks to encouraging remarks from Pelosi exacerbated US Dollar downside and helped steer spot USD/JPY price action to session lows.

USD/JPY PRICE CHART: DAILY TIME FRAME (01 JUL TO 20 OCT 2020)

The intraday reversal by USD/JPY also happens to correspond with another rejection of its 50-day simple moving average. This highlights growing potential for further Dollar-Yen weakness, which could motivate USD/JPY bears to eye another retest of the 105.00-handle and month-to-date lows. Breaching this technical support level could see USD/JPY prices extend even lower toward the 104.00-mark. Notable hurdles still stand in the way of politicians being able to break the ongoing impasse over passing a comprehensive coronavirus aid package prior to the upcoming election, however.

A last-minute breakdown in fiscal stimulus negotiations due to differences on aid to state and local governments, or failure to garner enough support in the Republican-controlled Senate, pose upside risks to USD/JPY price action. That said, eclipsing the bearish trendline extended through the series of lower highs since early July might open up the door for USD/JPY bulls to target the 106.00-price level before setting their sights back on August highs.

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight