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Nikkei's Breakout Puts USD/JPY On The Radar

Published 15/04/2019, 07:40
Updated 14/12/2017, 10:25

Renewed trade optimism and strong earnings from the US on Friday has seen Asia shares break broadly higher today, with the Nikkei 225 trading at its highest level since early December. We can see on the Nikkei 225 futures market that the trend structure is increasingly bullish, and today’s range expansion shows the index accelerating away from its 200-day average.

Ultimately, the trend remains bullish above the 21,540 low but over the near-term we’d like to see prices hold above the 21,876-21,970 highs, before targeting the December high around 22,700. With the Nikkei having broken a cycle high, we’re closely watching to see if USD/JPY follows suit.

Nikkei 225 Index Futures Daily

On the daily chart we can see that USD/JPY has stalled near the March high and is pondering a break higher. A morning star reversal pattern helped the pair bounce back above the 200-day eMA and has seemingly formed the ‘right shoulder’ (RS) of a potential inverted head and shoulders pattern. If successful, the pattern projects an initial target just above 114.

Furthermore, the short-term averages are fanning out to show a pick-up of bullish momentum. Whilst Friday’s could be used to confirm the inverted head and shoulders pattern, we’d prefer to use a break above December’s low (112.24) to confirm a breakout which bring 113 (round number) and the 113.70 highs into focus as potential, bullish targets.

US Dollar - Japanese Yen Daily Chart

As noted in this week’s COT report, JPY traders are their most bearish on the yen since late December, with short interest continuing to pick up whilst long interest trends lower. Yen futures have remained elevated, so perhaps its time to close the gap and break lower (which would be bullish for USD/JPY) and follow the Nikkei and AUD/JPY's bullish break.

JPY Large Speculative Positioning

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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