USD/JPY Forecast: Nikkei supports correction, focus on Trump

The Dollar-Yen pair dropped to a low of 115.19 on Tuesday before recovering losses to end the day on a flat note at 115.87 levels. The offered tone around the US dollar gathered pace in the Asian and European session. The data calendar was light and the lackluster action in the treasury yields meant there was less scope for meaningful moves in the US dollar.

Will Trump move markets today?

US President Elect Donald Trump and his transition team say the news conference will be at 11 a.m. Eastern time on Wednesday. The Dollar rally has stalled this week as investors are worried what President elect Trump might or might not say during his press conference.

Trump is widely expected to reiterate the promises he made during the election campaign. Moreover, he has been moving markets off late via his twitter account - @realDonaldTrump - about what he plans to do when he takes office on Jan. 20.

Trump is expected to answer questions from the press regarding repealing of the Affordable Care Act, confirmation hearings for his appointees, trade policy, immigration, appointment of Jared Kushner, his son-in-law, as Special Advisor to the President, how he plans to separate his business interests from the Presidency and last but not the least his view on China.

Markets could move/turn risk averse if Trump ups the ante on China. Protectionism, though good for US, could easily rattle broader markets in the short-run.

Technicals - Nikkei signals a short-term top is in place in USD/JPY

Nikkei daily chart

  • The bearish divergence on the Nikkei index adds credence to the argument that a short-term top is in place in the USD/JPY pair. This is because the Dollar-Yen and Nikkei have a strong positive correlation.

USD/JPY daily chart

  • The rebound from 115.19 on Tuesday established the area around the psychological level of 115.00 as a key support.
  • Thus, despite the bearish RSI divergence and the bearish crossover between the 5-DMA and 10-DMA, the bears are likely to stay on the sidelines as long as the spot remains above 115.00.
  • Fresh offers are anticipated below 115.00. The support comes in at 114.54 (23.6% of Nov 9 low - Dec 15 high) and 114.00 levels.
  • On the higher side, a daily close above 116.04 would open the doors to 117.00 levels.

AUD/USD Forecast: Caution advised despite bullish break

Daily chart

  • The descending trend line coming from the November 11 high and the December 14 high has been breached. However, the breakout is weak… given the Doji candle, which is a sign of bullish exhaustion.
  • Furthermore, the 50-DMA is sloping downwards. The weekly 5-MA and 10-MA are still sloping downwards as well.
  • Consequently, the spot is likely to revisit 0.7338 (50-DMA) and 0.73 levels.
  • On the higher side, only a daily close above the 50-DMA level of 0.74 would signal continuation of the rally from the Dec 23 low of 0.7150.

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