Market Brief: Nikkei 225, Hang Seng Higher as Risk Improves; JPY Strength Across the Board

Summary:
• The Nikkei 225 and other Asian stock indices traded higher today mimicking the performance of Wall Street last night. But the JPY is leading currencies.

Following the performance of the Nasdaq, S&P 500, and Dow Jones last night, Asian equities also finished in the green in today’s Asian session. The Nikkei 225 inched closer to the BOJ’s average ETF purchase cost at 19,500 as it finished with today with a 3.88% gain at 19,389.36. Meanwhile, the Shanghai Composite posted a more modest gain of 0.26% at 2,772.203. As for the Hang Seng Index, it is still open and trading more than 0.50% higher at 23,475.8.

Following the passing of the $2 trillion coronavirus relief package in the US Senate, risk appetite was also fueled today by the G20. In a join statement, leaders of the two largest economies in the world pledge to provide $5 trillion-worth of liquidity. There were also reports of Chinese President Xi Jinping and US President Donald Trump having a “very good conversation” about the coronavirus pandemic. This is positive for risk because the latter has previously been implying to blame China for the spread of the infection.

As for currencies, the performance is mixed. USDCAD is now leading gains as it trades 0.25% from its opening price. AUDUSD is also trading higher following the promise from Australian Prime Minister Morrison to add more relief. The currency pair is up by 0.11%. GBPUSD, EURUSD, and USDCHF are virtually unchanged.

Meanwhile, the yen is stronger against most of its counterparts. USDJPY is down by 0.68%. NZDJPY is down by the most amazing yen pairs at 1.09%. EURJPY is also in the red by 0.72% and presents a strong technical argument for a sell.

Read our Best Trading Ideas for 2020.

EURJPY Outlook

On the 1-hour chart of EURJPY, it can be seen that the currency pair has recently made a lower higher after a series of highs. Consequently, a head and shoulders pattern has formed. This is considered as a bearish reversal indicator in forex trading. Because the currency pair is already trading below the neckline support, it suggests that EURJPY may soon drop. The bearish flag which also materialized also strengthens this bearish assumption. Near-term support for the currency pair would be at 119.00 where the 200 SMA is. If support does not hold, the next floor could be at 117.85 where EURJPY bottomed on March 20 and March 23.

Alternatively, a rally to today’s Asian session highs at 120.98 may indicate that there are still buyers in the market and would invalidate the head and shoulders. Instead, it could mean a bigger rally to 122.68.