USDJPY Forecast Hong Kong Elections Fuel Risk On Appetite

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USD/JPY Forecast: Hong Kong Elections Fuel Risk On Appetite

An Unlikely Catalyst

The relationship between Hong Kong and the U.S. dollar is tenuous at best and yet the one is leading to a rally in the other. The results of Hong Kong’s elections resulted in an overwhelming win for pro-democracy candidates. The results are a warning shot to the establishment (China) that its policies will not be tolerated as they are on the mainland. While the news does little to assure Hong Kong’s ultimate autonomy it is having a positive effect on markets around the world. What it means for investors is stability (at least the removal of one uncertainty) within the region and that is fuel risk-on appetite.

What this means for the dollar is a shift from risk-off assets like the Japanese Yen in favor of riskier bets on global growth. The USD/JPY is moving up in early Monday action because of it and the charts point to solid gains in the weeks ahead. Today’s candle is a solid move up from support at the short-term moving average and the precursor to a potentially strong buy-signal. The move is already confirmed by a bullish crossover in stochastic that is in line with the prevailing trend. A move higher may find resistance at the 109.50 level but, once that is broken, a move up to 110.00 or 110.50 is expected.

What could possibly move this pair above resistance? How about a raft of economic data that is largely expected to confirm fundamental strength within the U.S. economy. Wednesday, due to the Thanksgiving holiday, there are a dozen major economic releases for the U.S. These include but are not limited to Personal Income and Spending, Consumer Level Inflation, Chicago PMI, and the Fed’s Beige Book. Individually, no single data point is expected to be robust, as a whole the package is expected to reveal stable if not modestly accelerating economic expansion despite the impact of the trade war.

Despite the outlook, there is some risk to this trade. Weak data, weak inflation, or negative trade news could put this pair into a reversal. The weekly chart helps highlight this risk as it shows an asset wound up within a trading range and very near the midpoint of that range. The good news, for traders, is that a confirmed of support/resistance at this level is likely going to lead the pair up/down by 350 pips or more.

USD/JPY firm in Asia open as Hong Kong election results support risk appetite

USD/JPY has been a pretty steady open despite a handful of weekend headlines pointing to a less pessimistic outlook for the various geopolitical themes which have kept markets on alert. At the time of writing, USD/JPY is trading at 108.66 within a tight 108.63 and 108.69 range with price hugging the accumulation of the 200, 21 and 50 4-hour moving averages.

The market’s focus, as outlined in this week’s Asia open: Recap of latest developments as risk-on tones emerge remains with trade wars and Brexit. The latest news is somewhat more positive for risk appetite, potentially curtailing the yen’s advances for the time being with USD/JPY ranging between 108.48 and 108.76 on Friday.

Hong Kong democrats score landslide victory, potentially supportive USD/JPY’s upside

Hong Kong democrats score landslide victory in local elections – RTRS

One of the standout risks for the day are with the Hong Kong district council elections – However, early results indicated a strong showing for pro-democracy candidates. Reuters reported that “Democratic candidates across the city of 7.4 million secured more than half of the 452 district council seats for the first time, against a strongly resourced and mobilized pro-establishment opposition.”

“As of 5:00 a.m. (2100 GMT), pro-democracy candidates had secured a majority with at least 283 seats, compared to about 32 seats for the pro-establishment camp, according to local media estimates. A record 1,104 candidates were vying for 452 seats.”

The news should be a relief to markets, (risk-on and USD/JPY positive), considering a positive outcome for the protesters.

US dollar enjoys bullish US economic data

Meanwhile, the US dollar is bid in its own right following dome promising data from Friday. US November flash Markit PMIs contrasted with the European and UK’s releases, beating expectations – manufacturing climbed to 51.6 (vs est. 51.0, prior 50.6) and services rose to 52.5 (est. 51.4, prior 51.3).

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Looking ahead, for the US calendar, we have Producer Price Index and Consumer Price Index data which analyst at TD Securities said suggest core PCE inflation likely remained steady at 1.7% YoY in October, despite a notable MoM increase in healthcare prices. “On the other hand, headline PCE likely rose a tenth to 1.4% YoY. Separately, we expect personal spending to advance 0.2% MoM for a third consecutive month in October, with a firm increase in services spending leading the upside.”

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair is technically neutral:

“…according to the daily chart, trading below the 20 and 200 DMA, both lacking directional strength, while the 100 DMA also heads nowhere, but well below the current level. Technical indicators are around their midlines, the Momentum heading lower but the RSI stable at around its 50 level. In the shorter term, and according to the 4-hour chart, the pair is also neutral, trading below the 100 SMA but above the 20 SMA, as technical indicators hover around their midlines without directional strength.”

USD/JPY firm in Asia open as Hong Kong election results support risk appetite

USD/JPY has been a pretty steady open despite a handful of weekend headlines pointing to a less pessimistic outlook for the various geopolitical themes which have kept markets on alert. At the time of writing, USD/JPY is trading at 108.66 within a tight 108.63 and 108.69 range with price hugging the accumulation of the 200, 21 and 50 4-hour moving averages.

The market’s focus, as outlined in this week’s Asia open: Recap of latest developments as risk-on tones emerge remains with trade wars and Brexit. The latest news is somewhat more positive for risk appetite, potentially curtailing the yen’s advances for the time being with USD/JPY ranging between 108.48 and 108.76 on Friday.

Hong Kong democrats score landslide victory, potentially supportive USD/JPY’s upside

Hong Kong democrats score landslide victory in local elections – RTRS

One of the standout risks for the day are with the Hong Kong district council elections – However, early results indicated a strong showing for pro-democracy candidates. Reuters reported that “Democratic candidates across the city of 7.4 million secured more than half of the 452 district council seats for the first time, against a strongly resourced and mobilized pro-establishment opposition.”

“As of 5:00 a.m. (2100 GMT), pro-democracy candidates had secured a majority with at least 283 seats, compared to about 32 seats for the pro-establishment camp, according to local media estimates. A record 1,104 candidates were vying for 452 seats.”

The news should be a relief to markets, (risk-on and USD/JPY positive), considering a positive outcome for the protesters.

US dollar enjoys bullish US economic data

Meanwhile, the US dollar is bid in its own right following dome promising data from Friday. US November flash Markit PMIs contrasted with the European and UK’s releases, beating expectations – manufacturing climbed to 51.6 (vs est. 51.0, prior 50.6) and services rose to 52.5 (est. 51.4, prior 51.3).

Looking ahead, for the US calendar, we have Producer Price Index and Consumer Price Index data which analyst at TD Securities said suggest core PCE inflation likely remained steady at 1.7% YoY in October, despite a notable MoM increase in healthcare prices. “On the other hand, headline PCE likely rose a tenth to 1.4% YoY. Separately, we expect personal spending to advance 0.2% MoM for a third consecutive month in October, with a firm increase in services spending leading the upside.”

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that the USD/JPY pair is technically neutral:

“. according to the daily chart, trading below the 20 and 200 DMA, both lacking directional strength, while the 100 DMA also heads nowhere, but well below the current level. Technical indicators are around their midlines, the Momentum heading lower but the RSI stable at around its 50 level. In the shorter term, and according to the 4-hour chart, the pair is also neutral, trading below the 100 SMA but above the 20 SMA, as technical indicators hover around their midlines without directional strength.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

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