For much of the second half of last year the Nikkei and USDJPY moved in the same direction. However, this relationship has deteriorated since the start of this year, as both the Nikkei and USDJPY have traded in a range. The Nikkei has lagged other major global indices, but now may be the time for it to play catch up, which could have big implications for USDJPY.
The Nikkei has followed US indices higher this week, as US indices including the Dow and the S&P 500 made fresh record highs. If this continues, and the relationship with USDJPY makes a comeback, then this important G10 FX pair could follow suit.
The technical view:
USDJPY is testing a critical resistance level at 102.39, the 50-day sma. The latest strength in this pair has seen momentum cross higher, which is a bullish sign, and if we can clear the 50-day sma then there is scope to test resistance at 103.06 – the 61.8% retracement of the April sell off. Above here opens the way to 104.13 – the high from April 4 th and then 104.92 – the January 16 th high.
Strong support lies at 101.20 – the low from March 3 rd , which has prompted a rebound twice since then, and looks like a medium-term low for this pair.
Takeaway:
Global stocks are starting to rally, which could boost the Nikkei.
Strength in the Nikkei could boost USDJPY.
USDJPY looks strong in its own right; if it can get above 103.06 resistance then we could re-test the highs of the year so far.
On the downside, 101.20 looks like a medium-term low for this pair.
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