Renewed trade optimism and strong earnings from the US on Friday has seen Asia shares break broadly higher today, with the Nikkei 225 trading at its highest level since early December. We can see on the Nikkei 225 futures market that the trend structure is increasingly bullish, and today’s range expansion shows the index accelerating away from its 200-day average. Ultimately, the trend remains bullish above the 21,540 low but over the near-term we’d like to see prices hold above the 21,876-21,970 highs, before targeting the December high around 22,700. With the Nikkei having broken a cycle high, we’re closely watching to see if USD/JPY follows suit.
On the daily chart we can see that USD/JPY has stalled near the March high and is pondering a break higher. A morning star reversal pattern helped the pair bounce back above the 200-day eMA and has seemingly formed the ‘right shoulder’ (RS) of a potential inverted head and shoulders pattern. If successful, the pattern projects an initial target just above 114. Furthermore, the short-term averages are fanning out to show a pick-up of bullish momentum. Whilst Friday’s could be used to confirm the inverted head and shoulders pattern, we’d prefer to use a break above December’s low (112.24) to confirm a breakout which bring 113 (round number) and the 113.70 highs into focus as potential, bullish targets.
As noted in this week’s COT report, JPY traders are their most bearish on the yen since late December, with short interesting continuing to pick up whilst long interest trend lower. Yen futures have remained elevated, so perhaps its time to close the gap and break lower (which would be bullish for USD/JPY) and follow the Nekkei and AUD/JPY's bullish break.