USD/JPY jumped higher this morning, a surprise move as last Friday closed bearishly. Prices did rebound from the post NFP lows of 98.6 but prices were still bearish considering that bulls were rebuffed at 99.2 – swing low of 3rd Sept, suggesting that bears are still firmly in charge.
Hence it is interesting to see this morning’s bullish gap which clawed back the post NFP losses and then some, sending price back up to 100.0 again. The catalyst for the move is currently unknown, but we can make a guess and attribute the gap to the improvement in risk appetite in Asia due to Australia’s election result. This may appear to be a long stretch, but certainly we’ve seen Asian stocks trading higher today, with ASX gaining 0.51% and Nikkei 225 2.29% higher. This bullish sentiment even allowed Nikkei 225 to ignore the weaker than expected Q2 GDP numbers that were released before market open, lending strength to the assertion that it is risk flows driving JPY weaker. That being said, some traders may argue that it is the weakness in JPY then drove stocks higher. Generally that is true, but in this case we’re looking at a less than 100 pip movement in USD/JPY but a huge 500 point rally in Nikkei, and hence it seems that it is increased risk appetite in stocks driving JPY lower and not the other way round.
Nonetheless, it should be noted that the less than spectacular Q2 GDP numbers did drive USD/JPY lower. Furthermore, the turnaround happened at the most inopportune moment – when USD/JPY was testing the 100.0 key resistance and was breaking the overhead Kumo. But bulls continue to remain robust, with prices finding support around 99.5 and 99.6, the soft support of last Thursday and Friday before the NFP sell-off.
There is also further signs that a bullish turnaround may be possible – Stochastic readings are flattening currently and looking likely to push up higher soon. If Stoch levels push back above 80.0 once again, current bearish cycle signal will be negated and give bulls the chance to press against overhead Kumo and potentially retest 100.0 once again. Preferably, price should clear the 100.2 Friday’s swing high to show bullish convictions.
Weekly Chart is also bullish with price breaking out from the triangle/pennant. This opens up 104.0 as bullish target with Jul’s swing high as interim resistance. Stochastic readings suggest that a bullish move is in play but readings should preferably break above 65.0 – the preceding peak – before a stronger bullish signal is formed.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.