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Japanese Yen May Fall as US Dollar Sets Up to Overturn Downtrend

Japanese Yen May Fall as US Dollar Sets Up to Overturn Downtrend

2019-10-27 23:00:00
Daniel Dubrovsky, Analyst
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Asia Pacific Market Open Talking Points

  • S&P 500 and MSCI Emerging Markets Index rose as sentiment improved
  • Follow-through may have to wait, Japanese Yen may see slight weakness
  • US Dollar could extend gains and overturn near-term downtrend ahead

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The US and Canadian Dollars aimed cautiously higher on Friday, rallying with a pickup in US government bond yields as risk appetite improved. Newswires attributed the rosy atmosphere to progress in US-China trade talks. According to a statement from the Office of the United States Trade Representative, the two countries were “close to” finalizing sections of an agreement.

Upon closer inspection, most of the gains in the S&P 500 and MSCI Emerging Markets Index occurred before this update crossed the wires. A clear catalyst seemed absent, but it might have been due to pre-positioning for this week which is filled with event risk. By the time US President Donald Trump commented that “we are doing very well with China”, stocks had run out of upside momentum.

The pickup in sentiment did not translate neatly and uniformly into foreign exchange markets. For example, the sentiment-linked Australian Dollar ended flat against the US Dollar while the similarly-behaving New Zealand Dollar declined. The anti-risk Japanese Yen weakened against AUD while outperforming NZD. This choppiness is understandable given the plethora of event risk due over the next 5 days.

Monday’s Asia Pacific Trading Session

With that in mind, we may see Asia Pacific benchmark stock indexes trade cautiously higher at the onset of Monday. Follow-through will likely have to wait as due this week are items such as the Fed rate decision, US GDP and Chinese Manufacturing PMI. For the time being, a cautiously optimistic tone early into the week could offer downside pressure on the Yen as the Australian Dollar gains.

US Dollar Technical Analysis

Gains in the US Dollar offered another upside push in the DXY Index. This follows the formation of a Bullish Harami candlestick pattern. Since we have seen confirmation higher, the Greenback could be due to test a potential falling trend line from the beginning of this month – blue line below. A close above it opens the door to reversing the near-term downtrend.

Chart of the Day – DXY

Japanese Yen May Fall as US Dollar Sets Up to Overturn Downtrend

Chart Created Using TradingView

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--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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

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