Gains Contingent on Risk Appetite

Nikkei 225 & USD/JPY Forecast:

  • The Nikkei 225 retraced another attempt higher as resistance at 20,000 keeps price contained
  • USD/JPY also moved lower as its mission to reclaim recent highs was temporarily extinguished
  • Still, risk appetite is crucial for continued gains in both markets and the fundamental landscape is becoming accommodative

Nikkei 225 & USD/JPY Price Outlook: Gains Contingent on Risk Appetite

The Nikkei 225 pulled back from the 20,000 area after an early run toward the level sputtered out. Still, recent price action has seen bulls make various attempts at overhead resistance with the move on April 7 establishing a new high above the March 25 peak around 19,650. With a fresh high on the chart, bulls may look to venture further in the days ahead should support around 19,040 and 18,220 hold if selling persists.

Nikkei 225 Price Chart: Daily Time Frame (June 2018 – April 2020)

To be sure, an apparent slowdown in coronavirus cases in Europe and the United States has helped boost investor sentiment that should drive risk appetite. Similarly, a “do whatever it takes” mentality from the Federal Reserve and Bank of Japan – among other major central banks – has renewed the confidence of many market participants. Together, fewer coronavirus cases and unprecedented central bank intervention will look to drive the Nikkei 225 higher in the days to come.

USD/JPY Price Chart: Daily Time Frame (May 2018 – April 2020)

usd/jpy daily price chart

The same can be argued for USD/JPY. While extreme risk aversion and panic had bolstered the US Dollar’s standing in early and mid-March, recent price action would suggest a return to normalcy for USD/JPY where the Greenback rallies in tandem with risk assets and the Yen rallies alongside “safer” investments like gold and US Treasuries.

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With that in mind, continued appetite for risk may see USD/JPY probe resistance overhead around the 109.69 mark where two trendlines collide. Prior to the area of confluence, a nearby Fibonacci level at 108.82 may also look to influence price to some degree. Should the pair break beneath 108.82, the 200-day simple moving average narrowly beneath should act as a formidable opponent to further selling.

While traders’ asses current market conditions and appropriate valuations, it would appear the Nikkei 225 and USD/JPY currency cross are firmly beholden to risk trends. Therefore, monitoring market volatility via the VIX index may provide key insight into the two market’s going forward. In the interim, follow @PeterHanksFX on Twitter for updates.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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