Market News & Analysis


Top Story

Yen in Risk Off Mode while Stocks are Near All Time Highs

Non-farm Payroll data was released this morning and the headline number was better than expected. As a result, stock markets are up at or near 1% on the day, closing in once again on all time highs. 

Source: Tradingview, City Index, CME

As one would expect, with a strong move higher in stocks, USD/.JPY would follow.  But take a look at the price action in USD/JPY since the initial move after the NFP data was released:

Source: Tradingview, City Index

USD/JPY is actually down slightly on the day!  On a daily timeframe, the pair couldn’t close about the 109.50 level, and therefore failed to break above the neckline of the inverted head and shoulders pattern.  In addition, that level represented the 61.8% Fibonacci retracement level from the highs of April 24th to the lows on August 26th.  Also, a rising wedge was formed, and price broke lower out of the wedge.  (The target for a break from a rising wedge is 100% of the wedge, which would be near the 104.50 level.) USD/JPY closed back below 109.00 on Monday, and then below the 200 Day moving average on Tuesday. The pair hasn’t been able to close above it since Friday of last week. 

Source: Tradingview, City Index

Traditionally, stocks and USD/JPY move together.  However, take a look at how the 2 assets have diverged over the last two days. 

Source: Tradingview, City Index, CME

First support now comes in at Wednesday’s lows and the 38.2% Fibonacci retracement level from the lows on October 3rd to the highs on December 2nd near 108.40/50.  Below there is horizonal support near 108.25.  But the ultimate support doesn’t come across until 104.50, which is the low from August 23rd, however there are various horizontal support levels all the way down to that level. 

Source: Tradingview, City Index

That leads us to beg the question….What happens to USD/JPY if stocks begin to sell off next week?  More specifically, what happens to USD/JPY (and other JPY pairs) if there is a hawkish statement from the FOMC on Wednesday? Or what happens to the pair if Boris Johnson loses the election on Thursday?  Or what happens if a US-China trade deal is off the table?  The risk is that stocks will move lower.  And if that is the case, USD/JPY may be ready for a move even lower with them!  


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.