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Japanese Yen Chart May Be a Warning Sign for the Nikkei

Japanese Yen Chart May Be a Warning Sign for the Nikkei

Ilya Spivak, Head Strategist, APAC

Japanese YEn, Nikkei225 – Talking Points:

  • Japanese Yen, Nikkei 225 have tracked higher amid improving market sentiment
  • US-China trade deal hopes, ebbing no-deal Brexit worries lifting traders’ mood
  • USD/JPY break of chart support may be warning of an anti-risk shift under way

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

Japan’s benchmark Nikkei 225 stock index rose alongside the hawkish turn in priced-in 2020 Fed policy expectations. The USD/JPY exchange rate advanced in lockstep, reflecting a parallel drop in the anti-risk Yen. The move appears to reflect hopes for de-escalation of the US-China trade war and easing worries about a no-deal Brexit. The US central bank concurred at its October policy meeting.

Chart of Nikkei 225 stock index, USD/JPY exchange range, Fed policy expectations

Chart created with TradingView

A red flag has now been raised by an eye-catching USD/JPY chart support break. Prices closed below a rising trend line establishing the upswing from August lows, which doubled as the lower bound of a bearish Rising Wedge pattern. It seems especially telling that this followed on the heels of a test at 13-month resistance. Negative RSI divergence added still more credence to the downside argument.

US Dollar vs Japanese Yen price chart

Daily USD/JPY chart created with TradingView

For its part, the Nikkei 225 has narrowly managed to hold up at the support line guiding its near-term trend. Sellers are pressuring this boundary however, pushing the index to within a hair of breakdown. The move in USD/JPY need not guarantee the same fate for Japanese stocks – correlation emphatically does notimply causation. Still, one asset may certainly mark an end to a common narrative before another.

Chart of Japan's Nikkei 225 stock index

Daily Nikkei 225 chart created with TradingView

If the Yen’s seemingly brightening prospects portend a broader recovery in anti-risk demand, Japanese stocks may soon follow USD/JPY downward. A daily close below trend line support – now at 22939 – initially targets 22505. The 21825-22120 zone follows shortly thereafter. Immediate resistance is at 23660, with a daily close above that needed to neutralize the near-term bearish threat.


--- Written by Ilya Spivak, Currency Strategist for

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.