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Forex Analysis – USDJPY
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As a result of the successful Japanese election over the weekend, the yen has weakened. This brings the USD/JPY pair back above 114.00, moving back towards the high of last month, which was 114.70 from 20th October. The USD/JPY has recently reached multi-year highs due to a combination of rising US benchmark yields, improving risk sentiment globally and higher energy prices.
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Similarly, the Nikkei 225 Index rose by around 2.5% overnight, heading back towards the September high.
A grateful Prime Minister Kishida has welcomed the results, stating “The LDP won a majority and received confidence in this vote”. Initial reactions to the Japanese election results have been mostly positive, with the LDP and coalition partner Komeito winning 293 of the 465 seats. Despite the ruling party remaining in power, the Osaka-based Ishin party gained 41 seats and is now the third-largest party. Ishin is a centrist party that favours reforms and is pro-markets. With this rise in popularity for the Ishin party, Japan is making a rightward political shift.
The new cabinet is expected to submit the FY2021 supplementary budget in early November when Prime Minister Kishida returns from COP26 with new economic measures that would amount to approximately 30 trillion yen.
The ActivTrader sentiment indicator shows that the majority of traders on the platform are expecting the USDJPY to drop, which is enough for contrarian traders to look for a high conviction trade to the upside.
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The above H4 chart shows that the moving averages have recently uncoiled to become bullish, with the 20, 50 and 200 period exponential moving averages all pointing higher. The price action also shows that the bullish market structure forming of higher highs just requires a higher low to print for the momentum to lead the USDJPY higher. The swing high at 113.80 could act as support along with the 20 & 50 ema’s for more USDJPY buyers to step in. The larger pattern is looking very good for traders that buy breakouts of Bull flags. The October high would be the key level to watch and for mitigating risks you could put the stop loss on the other side of the flag around the 112.90-113.00 zone.
