Strong showing by USD/JPY and Stocks in Asia today, as the markets get into easing mode.
USD/JPY climbs to 101.40, Nikkei up 2.25% and ASX up 0.5% as political uncertainty fades in early afternoon Asia trading. Spurred on by a strong showing by the LDP in weekend elections and additional stimulus headlines out of Japan.
Japan PM Abe: To order stimulus July 12; Mulls additional JGB issuance – Nikkei – Source TradeTheNews.com
While this is not set in stone, it is increasingly clear that Brexit is being regarded as a more localised negative for growth, but a very positive signal that rates either staying where they are or heading lower around the world. Fed funds hike expectations have barely move post-Friday’s nonfarm payrolls but bonds rallied and the S and P briefly touched record highs. The street , therefore, is getting back to what it does best in a perpetually low/no rate world, looking for yield, any yield. Be it stocks or bonds.
Over in Australia, it appears the Liberal Party will be forming some sort of government. Removing some weekend uncertainty and giving a green light for the ASX to rally to just shy of its pre-Brexit high 5340 this morning. This level forms first resistance with a break opening 2016 highs of 5440. Initial support comes in at the 5200 level.
Turning to the Japan, strong results for the LDP and its junior parties in upper house elections this weekend have given a fillip to Japan stocks. The LDP now has the 2/3 rds majority in both houses to amend the constitution and pursue Abenomics more strongly.The street has piled into the Nikkei after the above headline came out sending it up 2.25% on the day as I write. The onus will now be on the Government and BoJ to produce the goods in the coming weeks. An alternative school of thought is that changing the constitution to allow Japan’s military to operate outside of Japanese territory, may distract the Government from ongoing reforms.
The Nikkei has some way to go, unlike other indices, to regain it’s post-Brexit sell-off. Resistance is initially at 15850 and then 16275 trendlines followed by pre-Brexit 16560. Support lurks at 15300 and then 15000.
USD/JPY has moved higher with the Nikkei up 0.75% at 101.40. The hourly resistance is right here at 101.45 with hourly congestion on the charts at 102.40/60 the next port of call. Support is at 100.80 initially and then around the 100.30 level.
The duration of the USD/JPY rally in the short term, one suspects, is inextricably tied to the longevity of the Nikkei rally. Looking into the medium term the, ball is well and truly in the Governments court and meeting the expectations the street is placing on them on the easing/stimulus front.
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