USDJPY may follow Nikkei big breakout after Japanese elections

Underscoring investors’ insatiable appetite for risk, Japan’s main Nikkei index rose for the 14th consecutive day, which was one the longest winning streaks ever recorded. The USD/JPY, which tends to rise and fall in tandem with stocks, also gained ground, helping the Dollar Index to break its two-day losing streak. In Japan, the focus will be on Sunday’s general election. Prime Minister Shinzo Abe’s party is favourite to win big. A win for Abe is seen as positive for stocks and thus the USD/JPY, but this may be fully priced in by now. Still, with the Japanese index breaking out of a major longer-term consolidation, the USD/JPY could follow it higher in the coming days and weeks.

As noted in my last article on the USD/JPY, on 11th October, I was looking for bullish technical signals to emerge on this pair. Specifically, I was looking for signs that the sellers were getting trapped after the recent rally off of the 107.50 area had paused around 113. Many speculators were probably looking at that bearish-looking doji candle that was formed two weeks ago as a sign that the long-term downtrend had resumed. While that could be the case, I still think that the recent trend of USD/JPY is bullish after the formation of that false break reversal at 107.50 key support. So, I still think that the USD/JPY may be poised for a potential bullish breakout rather than a breakdown.

Indeed, this week’s technical indications point that way. For one thing, the highs from the previous two weeks have been taken out. Thus, one of the bears’ main arguments that price would fall after the formation of that bearish-looking doji candle is now void. It is likely that some of the sellers that got in the USD/JPY on the back of that weekly candlestick pattern are now out of their positions. What the bulls need now is a clean break above 113.45 level, which would then pave the way for a potential rise towards the next pool of liquidity above the 114.35 area.

The invalidation for the above bullish scenario would be if price now goes back below old resistance levels at 112.80/5 and 112.30/5. If so, we could see a pullback towards the next support around the 111.00 area next. Even then, my long-term bullish view would not necessarily become invalidated, but we will obviously have to reassess the situation if and when we get there.

Source: eSignal and FOREX.com.

Source: eSignal and FOREX.com. Please note, this product is not available to US clients

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. 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 warranty 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, author does not guarantee its accuracy or completeness, nor does 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.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.