Daily Market Analysis By FXOpen

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GBP/USD Remains At Risk, EUR/GBP Could Extend Gains

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GBP/USD is trading in a bearish zone below the 1.3750 resistance zone. EUR/GBP is rising and it could gain pace if it clears the 0.8600 resistance.

Important Takeaways for GBP/USD and EUR/GBP


  • The British Pound declined below the 1.3800 and 1.3765 support levels.
  • There is a key contracting triangle forming with resistance near 1.3685 on the hourly chart of GBP/USD.
  • EUR/GBP started a decent increase and cleared the 0.8550 pivot level.
  • There was a break above a major bearish trend line with resistance near 0.8565 on the hourly chart.

GBP/USD Technical Analysis

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The British Pound started a major decline from well above 1.3800 against the US Dollar. The GBP/USD pair traded below the 1.3720 and 1.3700 support levels to enter a bearish zone.

The pair even broke the 1.3650 support and settled below the 50 hourly simple moving average. It traded as low as 1.3609 and recently started an upside correction. The pair climbed above the 1.3700 resistance, but the bears were active near 1.3750.

A high was formed near 1.3750 before the pair started a downside correction. There was a break below the 1.3700 support level. It traded below the 50% Fib retracement level of the upward move from the 1.3609 swing low to 1.3750 high.

It is now consolidating near the 1.3665 support level. It is close to the 61.8% Fib retracement level of the upward move from the 1.3609 swing low to 1.3750 high. There is also a key contracting triangle forming with resistance near 1.3685 on the hourly chart of GBP/USD.

If there is an upside break above the triangle resistance, the price could surpass 1.3720. The main resistance is near the 1.3750 zone. Therefore, a proper break above the 1.3750 resistance could open the doors for a steady increase. The next major resistance for the bulls could be 1.3800.

If not, the pair could break the 1.3665 and 1.3660 support levels to continue lower. The first key support is near the 1.3620 level. Any more losses could lead the pair towards the 1.3550 support zone.
 

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Oil’s Rally Continues Ahead of the OPEC’s World Oil Outlook Release

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The rally of oil prices continues and is getting threateningly close to reaching a new high for the year. With just a day left before OPEC releases its World Oil Outlook, the WTI crude oil price trades with a bid tone, up over 1% at the start of the trading week.

The WTI crude oil price has grown over 85% in the last year, moving in a steady, bullish trend. It corrected over the summer months, but found strong support at the $60 level.

Goldman Sachs Remains Bullish
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The price of oil was driven higher by strong demand following the coronavirus lockdowns and OPEC’s swift reaction to the pandemic. As we get closer to the end of the year, Goldman Sachs remains bullish on the price of oil. More precisely, Goldman sees Brent oil at $90/barrel at the end of the year, and it also lifted its price targets for 2022 and 2023.

Oil is a commodity, and, as such, its price is affected by the imbalances between supply and demand. For now, demand is strong as economic recovery from the pandemic slump continues. Because OPEC has cut production below the demand level, the oil prices recovered from the negative territory in April 2020 all the way to $77, the 2021 high for the WTI crude oil.

The Vienna talks are seen as the biggest risk for the price of oil. Iran is ready to come back to the negotiations table after the local elections ended, and the markets expect them to be successful. If the Iranian oil hits the market, the price of oil will have to reflect the extra 2 million barrels or so per day. But the negotiations are yet to start… and they usually take a lot of time.

Therefore, the bias remains bullish for the price of oil for the end of the trading year. If the market manages to make a new higher high above $77, more upside is likely to come.
 

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BTCUSD and XRPUSD Technical Analysis – 28th SEPT, 2021

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BTCUSD: Grinding above $40K Support

Bitcoin is currently struggling to keep itself above the $40k support and the price is oscillating between the Fibonacci levels of $41472 and 100-day moving average of $42834. It remains in accumulation mode in the London trading session. BTC bullish sentiment was seen at the opening of this week when it touched a high of $44304. Long-term outlook for bitcoin appears bullish and the short-term decline currently reinforces a mild bearish trend formation.

  • The relative strength index (14-day) and ultimate oscillator are both indicating a SELL at the current market levels of $41745.
  • A short-term correction below $40000 is expected before the continuation of the bullish trend.
  • Simple and exponential moving averages indicate a strong SELL.
  • Average true range (14-day) indicates high volatility.

Bitcoin Short-Term Bearish Formations

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Bitcoin saw a mixed start this week and there is no sign of a bullish momentum. The 100 day moving average is indicating a strong SELL.

The immediate targets would be breaching the classic support levels at $41243 and further moving towards the next major support located at $35819.

Bitcoin is witnessing increased volatility after China banned all crypto transactions during the previous weekly closing on Friday. The support that is holding this week could be broken and bitcoin could start a further decline this week pushing below the psychological support level of $40000.

In the last 24hrs, BTCUSD has dropped by -4.76% (+2087$) and has a 24hr trading volume of USD 31.47 billion.

Bitcoin Sell-Off Continues

Bitcoin is facing selling pressure after the China ban and the trading volumes are high at the Asian exchanges today.

Also, many crypto currency exchanges are closing their Chinese accounts, leading to a withdrawal of funds in the US dollars and putting a selling pressure on BTCUSD.

Technical Indicators:

Relative strength index (14-day): at 32.442 with a SELL

Ultimate oscillator: at 40.38 with a SELL

Moving averages convergence divergence (12,26): at -370.10 with a SELL

Price of rate change ROC: at -2.31 indicating a SELL
 

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EUR/USD Could Recover, USD/JPY Extends Rally

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EUR/USD extended its decline and traded close to 1.1665. USD/JPY is rising and it might continue to rise above the 111.70 level.

Important Takeaways for EUR/USD and USD/JPY


  • The Euro started a major decline below the 1.1750 and 1.1720 support levels.
  • There is a key bearish trend line forming with resistance near 1.1690 on the hourly chart of EUR/USD.
  • USD/JPY started a fresh increase and it cleared the 111.00 resistance zone.
  • There is a crucial bullish trend line forming with support near 111.40 on the hourly chart.

EUR/USD Technical Analysis

This week, the Euro started another decline below the 1.1750 support against the US Dollar. The EUR/USD pair traded below the 1.1720 support to move into a bearish zone.

The pair even broke the 1.1700 level and settled below the 50 hourly simple moving average. A low is formed near 1.1667 on FXOpen and the pair is now consolidating losses. An immediate resistance is near the 1.1688 level.

EUR/USD Hourly Chart
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The 23.6% Fib retracement level of the recent decline from the 1.1749 swing high to 1.1667 low is also near the 1.1688 level. The first key resistance is near the 1.1690 level and the 50 hourly simple moving average.

There is also a key bearish trend line forming with resistance near 1.1690 on the hourly chart of EUR/USD. The next major resistance could be 1.1710. It is near the 50% Fib retracement level of the recent decline from the 1.1749 swing high to 1.1667 low.

A close above 1.1720 could open the doors for a steady increase towards 1.1750. Any more gains may possibly lead the pair towards the 1.1800 level.

If there is no break above 1.1690, the pair might continue to move down. An immediate support is near the 1.1665. The next major support is near 1.1650, below which the pair could drop towards the 1.1600 support in the near term.
 

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ETHUSD and LTCUSD - Technical Analysis – 30th SEPT, 2021

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ETHUSD: Ether Rebounding Towards $3000

Ethereum failed to clear the $3200 mark after opening this week on a bullish tone and has since then seen correction touching a low of $2781.58. ETH is now moving above the 100 hourly moving average and would need to cross the major resistance located at $3511.

  • Ethereum is gaining traction above $2800 today.
  • A correction is expected towards $2955 before the continuation of the bullish trend.
  • Staying above both the 100 hourly simple and exponential moving averages.
  • The pair is expected to cross $3500 in the opening of the next week.

Ether Dips Well Supported

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Ethereum is now on its path towards $3500 after clearing the 20-day moving average of 2913.76 The volatility in Ethereum is low, which is expected to continue next week.

ETH has gained 1.89% with a price change of +$55.32 in the past 24hrs, and has a trading volume of 17.985 billion USD.

The Week Ahead

Ethereum is rebounding after falling towards $2800 as the investors are buying the dips. The movements in Ethereum correlate to the US stocks as the Federal Reserve has hinted it will start hiking interest rates in the coming year.

The rebound was strong and the 50-day moving average, also indicating a BUY.

This week, ETHUSD is expected to close at above the $3200 level, and the trend will continue in the opening of the next week.

In the next week, Ether is expected to cross its resistance located at $3300. Any rally in the crypto markets could steer it above the $3550 level.

Technical Indicators:


Moving averages convergence divergence (12,26): at 37.67, indicating a BUY.

100 hourly moving average: at 2955.89, indicating a BUY.

Ultimate oscillator: at 52.42, indicating a BUY.

Relative strength index (14 days): at 57.79, indicating a BUY.
 

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Gold Price and Crude Oil Price Remain Supported

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Gold price started a fresh increase from the $1,720 support. Crude oil price rallied and it even broke the $75.00 resistance before correcting lower.

Important Takeaways for Gold and Oil


  • Gold price started a decent increase above the $1,735 resistance against the US Dollar.
  • There was a break above a major bearish trend line with resistance near $1,737 on the hourly chart of gold.
  • Crude oil price started a fresh rally from the $70.00 support zone.
  • There was a break below a key bullish trend line with support near $74.85 on the hourly chart of XTI/USD.

Gold Price Technical Analysis

Gold price extended its decline below $1,740 against the US Dollar. However, it found support near the $1,720 zone. A low was formed near $1,721 on FXOpen and the price started a fresh increase.

It was able to clear the $1,735 resistance and the 50 hourly simple moving average. There was a break above a major bearish trend line with resistance near $1,737 on the hourly chart of gold.

Gold Price Hourly Chart
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The price even broke the 50% Fib retracement level of the key decline from the $1,787 swing high to $1,721 swing low. It is now consolidating gains near the $1,750 level. The first major resistance is near the $1,762 level.

The 61.8% Fib retracement level of the key decline from the $1,787 swing high to $1,721 swing low is also near $1,762. The main resistance is near the $1,780 level. A close above the $1,780 levels could open the doors for a steady increase towards $1,800.

The next major resistance sits near the $1,820 level. On the downside, an initial support is near the $1,745 level. The first major support is near the $1,735 level. A downside break below the $1,735 support zone may possibly spark a sharp decline. In the stated case, the price could test the $1,720 support.
 

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GBP/USD Faces Hurdle While GBP/JPY Eyes Recovery

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GBP/USD extended its decline below the 1.3500 support zone before correcting higher. GBP/JPY is rising and it could gain pace if it clears the 150.60 level.

Important Takeaways for GBP/USD and GBP/JPY


  • The British Pound traded as low as 1.3411 before it started a fresh increase against the US Dollar.
  • There was a break above a key bearish trend line with resistance near 1.3455 on the hourly chart of GBP/USD.
  • GBP/JPY found support near 149.20 and started a decent increase.
  • There is a major bearish trend line forming with resistance near 150.60 on the hourly chart.

GBP/USD Technical Analysis

This past week, the British Pound saw a drop below the 1.3650 support level against the US Dollar. The GBP/USD pair even broke the 1.3600 and 1.3500 support levels.

It traded as low as 1.3411 on FXOpen before it started a fresh increase. There was a steady increase above the 1.3450 resistance level. The price surpassed the 1.3500 resistance level and the 50 hourly simple moving average.

GBP/USD Hourly Chart
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There was also a break above a key bearish trend line with resistance near 1.3455 on the hourly chart of GBP/USD. Besides, the pair surpassed the 38.2% Fib retracement level of the key decline from the 1.3717 swing high to 1.3411 low.

The pair even climbed above 1.3550 and retested the 1.3560 resistance levels. However, the pair is now facing resistance near the 1.3575 level. It is also struggling near the 50% Fib retracement level of the key decline from the 1.3717 swing high to 1.3411 low.

A close above the 1.3575 level could open the doors for more gains. The next major hurdle is near 1.3620, above which the pair could surge towards 1.3750. An immediate support is near the 1.3525 level.

The next major support is near the 1.3480 level and the 50 hourly simple moving average. If there is a break below the 1.3480 support, the pair could test the 1.3420 support. If there are additional losses, the pair could decline towards the 1.3350 level.
 

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Investors Expect US Dollar’s Safety Despite Rising Inflation

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A new trading month has started pretty much on the same note as the previous one: rising inflation and a stronger US dollar. Last Friday, inflation in the Eurozone and the United States exceeded expectations.

In Germany, for example, it is above 4%, and the last time the annual inflation was as high, the interest rates were higher still. In the US, the Core PCE inflation rose by +0.3% in the previous month. This is the Fed’s favorite way of measuring inflation because it does not consider energy and food prices.

Speaking of energy prices, they are going through the roof. Last week, some interesting milestones were reached. First, Brent crude oil has reached $80/barrel, a 3-year high. Second, Asian coal has reached $203 a tonne, also a record. Natural gas in Europe and Asia hit a record high as well, $34/mBtu.

Although energy prices are not included in the Core PCE calculation, Core PCE is still on the rise, which is evident from Friday’s data. If we judge by the M2 (i.e., money supply)’s correlation to inflation, as shown by the chart below, then inflation is just about to explode.

Why Is US Dollar Getting Stronger Despite Rising Inflation?
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One of the questions that many traders and investors are asking is, why is the US dollar getting stronger in a rising inflation environment? Indeed, the US dollar gained against its peers in 2021. Take the EUR/USD exchange rate: it started the year above 1.23 and closed last Friday around 1.16 – a decline of over seven big figures (i.e., seven hundred pips).

There are a few reasons for this. First, USD’s status as the world's reserve currency has not changed during the pandemic despite the US Federal Reserve printing more money than ever.

Second, the Fed prepares to remove some of the monetary accommodation. Most likely, the Fed will announce the start of the tapering of its asset purchases program in November, and the actual reduction in bond-buying in December. Thus, there will be no more bond-buying from the Fed by the middle of next year, as quantitative easing will have officially ended.

In doing so, the Fed is way ahead of other central banks. And it responds to – you guessed it – rising inflation.

Rising inflation prompts central banks to tighten the monetary policy. The quicker the response, the easier it would be to contain the rise in the prices of goods and services. Judging by how far the prices went, it could be that the Fed and other central banks in the world are behind the curve with their monetary policy measures.
 

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BTCUSD and XRPUSD Technical Analysis – 05th OCT, 2021

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BTCUSD: Rising Uptrend Channel Above $48k

Bitcoin is gaining traders sentiment and inching towards $50k in the London trading session. BTC is moving in a rising uptrend channel formation currently trading above its 100 hourly moving averages of $47914. The medium to long term outlook for bitcoin remains bullish with immediate targets for today at $52900.

Relative strength index (14-day) and ultimate oscillator are both indicating a BUY at the current market levels of $49488.

  • A bullish momentum is seen above the levels of 47801. The price is expected to remain above these levels.
  • BTCUSD is expected to touch an intraday high of $52500 in the US trading session.
  • Simple and exponential moving averages indicate a strong BUY.
  • Average true range (14-day) indicates less volatility.

Bitcoin Medium-Term Bullish Trend

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Bitcoin saw a bullish tone this week and has since continued to rise aiming towards the $50k mark. It is now facing classic resistance levels of $50083 after which the path towards $52000 will get cleared.

In the last 24 hrs BTCUSD has risen by +3.50% to reach +2020$ and has a 24hr trading volume of USD 33.36 billion.

Bitcoin Demand Continues

The year 2021 has been a turnaround year for bitcoin after its widespread adoption and usage. Since the recent ban by China, BTCUSD has gone through a short selling phase. But the recent comments from the Fed Chair Powell indicated that the United States has no plans to follow China or ban crypto. Bitcoin is witnessing a steady increase in prices today in the European trading session.

Bitcoin is witnessing a continuous buying pressure across the major cryptocurrency exchanges worldwide, leading to a continuous surge in prices.

Technical Indicators:

Average direction change (14-day): at 34.157 indicating a BUY

Bull/Bear power (13-day): at 620.67 indicating a BUY

Moving averages convergence divergence (12,26): at 314.80 indicating a BUY

StochRSI (14-day): at 58.88 indicating a BUY
 

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EUR/USD and EUR/JPY: Euro Eyes Recovery

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EUR/USD extended its decline to 1.1565 before correcting higher. EUR/JPY is rising, but it is facing hurdles near 129.50 and 129.75.

Important Takeaways for EUR/USD and EUR/JPY

  • The Euro gained bearish momentum below 1.1650 and 1.1600.
  • There is a major bearish trend line forming with resistance near 1.1600 on the hourly chart.
  • EUR/JPY is attempting a recovery wave above the 129.20 resistance level.
  • There is a key bullish trend line forming with support near 129.00 on the hourly chart.

EUR/USD Technical Analysis

The Euro started a major decline after it struggled to clear the 1.1750 resistance against the US Dollar. The EUR/USD pair broke the 1.1650 support zone to move into a bearish zone.

The pair even traded below the 1.1600 support and settled below the 50 hourly simple moving average. A low was formed near 1.1563 on FXOpen and the pair is now correcting losses. There was a break above the 1.1600 level.

EUR/USD Hourly Chart
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The pair even spiked above the 1.1620 resistance level, but it faced a strong resistance near the 1.1640 level. A high was formed near 1.1639 and the pair corrected lower.

It traded below the 50% Fib retracement level of the upward move from the 1.1563 swing low to 1.1639 high. There is also a major bearish trend line forming with resistance near 1.1600 on the hourly chart.

It is now consolidating near the 1.1590 level and below the 50 hourly simple moving average. An immediate resistance is near the 1.1600 level. The main resistance is forming near the 1.1640 and 1.1650 levels. A clear break above the 1.1650 resistance could push EUR/USD towards 1.1750.

On the downside, the 1.1665 level is a major support. Any more losses might lead EUR/USD towards the 1.1520 support zone in the near term. The next major support sits near the 1.1500 level.
 

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Facebook Stock Price Under Pressure After This Week’s Outage

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At the beginning of this trading week, Facebook suffered an outage that lasted for several hours and prevented the users of its apps and services, including Instagram, WhatsApp, and even the company’s website, from accessing them.

Facebook stock price dropped down, too. Investors reacted quickly by selling the stock short, as the outage has created a dangerous precedent.

Facebook makes most of its revenues from running ads on its platforms, mainly on Facebook, but also on Instagram. The shutdown of any of its income sources is a threat to the company’s future, and the fact that Facebook was not able to recover for several hours worried investors.

A faulty configuration change was responsible for the outage, according to Facebook. The big question is, could it happen again?

What Does Technical Analysis Say?

Truth be told, Facebook charts looked bearish well before this week’s shutdown. The stock price started trending higher after it broke out of a bullish triangle in spring, and did not look back all the way until it reached $380.

It climbed to record levels making a series of higher highs and higher lows, typical in rising trends. Technical traders can even spot a bullish channel, but one that is broken now.

Moreover, the price action is bearish at the moment because the decline caused by this week’s incident broke the higher lows series. Such a break is said to be bearish, as it signals the end of the previous bullish trend. Moving forward, support is not seen until the level of $300.

Facebook is to report its quarterly earnings on October 25, and the market expects EPS of $3.17. The company operates with a gross profit margin of 80.98%, much higher than the 51.07% sector median. Facebook stock price is up +21.89% this year.
 

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ETHUSD and LTCUSD Technical Analysis – 07th OCT, 2021

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ETHUSD: Ether Above $3500

Ethereum is moving in a strong bullish momentum after crossing the $3500 handle, and any dip is reinforced with fresh buying pressure in ETHUSD. ETH is now on its path towards crossing the Fibonacci resistance levels of $3615 and classic resistance levels of $3644 today.

Ether is expected to maintain the bullish tone this week and continue towards the $4000 mark as the bulls take over. Today in the Asian trading session ETHUSD touched an intraday low of $3470.

ETH is now moving above both the 100 hourly and 200 hourly moving average. After reaching the $3600 level, prices are expected to consolidate towards $3550.

  • Ethereum is on a bullish run towards $3750
  • Short term to Medium term outlook remains bullish.
  • Staying above both the 100 hourly simple and exponential moving averages
  • The ETHUSD is expected to cross $3850 in the opening of next week.

Ether Uptrend Channel Formations

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ETHUSD is moving in uptrend channel formations by staying above the $3500 levels. Ethereum is now on its path towards $3600 after clearing the 50-day moving average of $3500.82. The volatility in ETHUSD is lower today, and more trading volumes could be seen this week.

ETH gained 5.73% with a price change of +$196.88 in the past 24hrs, and has a trading volume of 22.478 billion USD.

The Week Ahead

Ethereum is moving in a bullish tone this week, and any dips are well supported, pushing its prices above the $3500 mark. A short-term correction is expected once the price reaches $3600 after which the path towards $4000 will be cleared.

Since the average direction change (14-day) is neutral, ETHUSD may enter into a consolidation or correction phase at any time; but the renewed buying pressure that is seen will steer its prices above $3600 today in the US trading session.

This week, ETH is expected to close above the $3800 level, and the trend will continue in the opening of the next week.

Technical Indicators:

StochRSI (9,6): at 63.86 indicating a BUY

Moving averages convergence divergence (14-day): at 18.72 indicating a BUY

Ultimate oscillator: at 61.79 indicating a BUY

Bulls/Bears power (13-day): at 18.187 indicating a BUY
 

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Gold Price and Crude Oil Price Eye More Upsides

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Gold price is trading in a positive zone above the $1,750 support. Crude oil price is gaining pace and it could rise further above $80.00.

Important Takeaways for Gold and Oil


  • Gold price started a decent increase above the $1,750 resistance against the US Dollar.
  • There is a key bullish trend line forming with support near $1,755 on the hourly chart of gold.
  • Crude oil price started a fresh rally from the $72.00 support zone.
  • There was a break above a short-term bearish trend line at $76.80 on the hourly chart of XTI/USD.

Gold Price Technical Analysis

Gold price started a fresh increase above the $1,740 pivot level against the US Dollar. The price gained pace and it was able to settle above the $1,750 resistance zone.

A high was formed near $1,770 on FXOpen and the price corrected lower. There was a break below the $1,755 level, but the bulls remained active near $1,750. A low is formed near $1,745 and the price is now rising.

Gold Price Hourly Chart
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The price is back above the $1,750 level and the 50 hourly simple moving average. It also surpassed the 50% Fib retracement level of the recent decline from the $1,770 swing high to $1,745 low.

An immediate resistance on the upside is near the $1,760 level. It is near the 61.8% Fib retracement level of the recent decline from the $1,770 swing high to $1,745 low. The first major resistance is near the $1,762 level.

The main resistance is near the $1,770 level. A close above the $1,770 level could open the doors for a steady increase towards $1,800. The next major resistance sits near the $1,820 level. On the downside, an initial support is near the $1,755 level.

There is also a key bullish trend line forming with support near $1,755 on the hourly chart of gold. The first major support is near the $1,750 level. A downside break below the $1,750 support zone may possibly spark a steady decline. In the stated case, the price could test the $1,730 support.
 

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GBP/USD Eyes Upside Break While GBP/JPY Is Rising

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GBP/USD is rising and it could continue higher if there is a break above 1.3700. GBP/JPY is surging and it is trading above the 152.50 pivot level.

Important Takeaways for GBP/USD and GBP/JPY


  • The British Pound traded as low as 1.3414 before it started an upside correction against the US Dollar.
  • There was a break above a major bearish trend line with resistance near 1.3610 on the hourly chart of GBP/USD.
  • GBP/JPY gained pace and was able to clear the 152.50 resistance zone.
  • There is a key bullish trend line forming with support near 152.20 on the hourly chart.

GBP/USD Technical Analysis

This past week, the British Pound extended its decline below the 1.3550 support level against the US Dollar. The GBP/USD pair even broke the 1.3500 and 1.3450 support levels.

It traded as low as 1.3414 on FXOpen before it started a decent increase. There was a steady increase above the 1.3500 resistance level. The price surpassed the 1.3550 resistance level, but it remained below the 50 hourly simple moving average.

GBP/USD Hourly Chart
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There was a break above a major bearish trend line with resistance near 1.3610 on the hourly chart of GBP/USD. Besides, the pair surpassed the 38.2% Fib retracement level of the main decline from the 1.3912 swing high to 1.3414 low.

The pair even climbed above 1.3600 and retested the 1.3620 resistance levels. However, the pair is now facing resistance near the 1.3660 level. It is also struggling near the 50% Fib retracement level of the main decline from the 1.3912 swing high to 1.3414 low.

A close above the 1.3660 level could open the doors for more gains. The next major hurdle is near 1.3700 and the 50 hourly SMA, above which the pair could surge towards 1.3800.

On the downside, an immediate support is near the 1.3620 level. The next major support is near the 1.3550 level. If there is a break below the 1.3550 support, the pair could test the 1.3500 support. If there are additional losses, the pair could decline towards the 1.3420 level.
 

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Japanese Stocks Outperformed Their Peers in September. Will the Rally Continue?

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In September, financial markets celebrated the change in the Japanese leadership by sending up the stocks. Likewise, the news of the Japanese prime minister’s resignation has spurred a stock market rally, and in September, the TOPIX index outperformed its peers like NASDAQ or MSCI AC World Index.

Since a new prime minister was approved by the parliament, the stock market has been rallying on the news that the new leadership is preparing a new stimulus package to support economic recovery.

But there is something else behind the Japanese equities rally. As it turns out, the new prime minister, Fumio Kishida, is backing down on his talk of raising corporate taxes. The news has spurred a further rally in the stocks and a lowering of the Japanese yen.

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What About the Japanese Yen?

The Japanese yen has been dropping like a rock recently, as seen in the main JPY pairs like USD/JPY and EUR/JPY. USD/JPY, in particular, seems very strong. The market trades now close to 113, up close to 100 pips points since the start of the current trading week.

The move higher in the Japanese yen diverges from the rest of the financial markets. The yen is typically viewed as a risk-off currency, and the stock market decline in September failed to trigger a stronger yen. Instead, it correlates now with the Japanese equities.

Another factor driving Japanese equities higher is the successful vaccination campaign. While the campaign started slow, it is now fast approaching herd immunity levels.

All in all, the momentum in the Japanese equity market seems strong, fueled by local developments. Unless we see a major correction in the US equity markets that will be able to derail the Japanese yen trend, chances are that we will see more of the same in the months left in the trading year.

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