The weaker Yen has benefitted the Nikkei which now appears on track for another leg higher towards the 20,400 targets. AUDJPY has since paused below a critical juncture yet we suspect the odds favour an eventual upside break.
The Nikkei printed a solid bull candle on Friday to suggest the low is in place, which leaves potential for the final leg up to our 20,400 targets. It has been helped higher by a weaker Yen and, if USDJPY goes on to hit the 114.38 target then the Nikkei could exceed the bullish target above 20,400. However, we are also slightly concerned that the bond market is not backing up the higher Nikkei, which is why we are conservatively bullish for another swing higher whilst also monitoring the development on a potential bearish wedge.
Friday’s low also coincides with MR1 and the low of 3x Dojis. Therefore, we can use this area to aid with stop placement but to increase the potential reward/risk ratio we can consider a buy-limit within Friday’s range.
We have included a potential bearish wedge but this is for illustrative purposes only; price need to remain contained perfectly within the red lines for the pattern to be valid, so we focus on the relationship between the swings instead. If this is a true bearish wedge, then each leg higher should be of less magnitude, so direct gain from here lowers the probability of the bearish wedge being confirmed. Moreover, to confirm the pattern we need to see a break of a prior swing combined with a higher low and, yet, we see neither. Therefor the near-term bias remains bullish and we will continue to monitor the potential wedge.
The 2yrs spread is testing the bearish trendline, so a bullish signal can be taken if it breaks to the upside over the coming sessions. We would feel more confident with Nikkei being near current highs if the spread it to move higher because presently, its failure to close the gap and support Nikkei undermines recent gains on the Stock index. Alternatively, if we are to see the spread move lower (and break the blue line) then this improves the odds of a bearish wedge of playing out.
The Australian Dollar is one of many currencies taking advantage of the weaker Yen. AUDJPY is fliting with a bearish resistance level and we suspect it odds of it breaking higher form here are strong. As Friday’s candle particularly bullish, its likely we’ll only see a minor pullback before it breaks higher. Therefor this is one of the rare occasions we’d consider entering before the break and using the 50% retracement of the bullish candle to aid with potentials entry or stop placement.
The zone between the 50% and 61.8% retracement of Friday’s range also coincides with a swing low and swing high, making it an important level going forward. As prices have also stalled beneath the MR2 pivot as well as the bearish trendline, we think the odds of a move lower form here are relatively high, so we’ll seek support to be found above the Fibonacci zone.