A Risk Reversal Could Finally Be Underway

 | Nov 06, 2019 11:51PM ET

USD/JPY Performance Chart

The tables could be turning for risk, with several JPY crosses looking like they’re finally topping out and due their anticipated corrections. With indices just off record highs and several markets pausing below key resistance (AUD/USD, EUR/JPY and USD/JPY, just to name a few), it suggests traders are hopeful U.S. and China can sign this famous deal, yet doubts linger in the air. And with reports piling up that the U.S. and China aren’t likely to sign the famous “phase one” trade deal until December, then risk could be ripe for a correction.

This potential correction was flagged a couple of weeks ago with so many markets pausing at the said key levels. Now momentum has turned, the probability of downside for risk assets could be increasing, although equity markets are yet to play catch-up.

Market Indices Daily Charts

  • AUD/JPY: A 2-bar reversal formed below the 200-day eMA. We outlined potential resistance following New Zealand’s weak employment data and it looks like a correction is underway. That said, it appears NZD/JPY may provide better downside potential.

  • NZD/JPY: A series of bearish pinbars stalled near the resistance cluster and beneath the bearish trendline. Moreover, price action has carved out a double top. Bearish momentum picked up at the end of the U.S. session and carried through to Asia, and now on the cusp of breaking key support. Bears could target the lows around 68 and/or the lower trendline.

  • CAD/JPY: One of the stronger performers against the since the August lows, price action reversed after perfectly hitting the upper bounds of the channel. A lower high has formed with a dark cloud cover and prices are now trying to make their way to 81.83 support. If this level breaks, the lower trendline becomes the focus for bears.
    • Get The News You Want
    Read market moving news with a personalized feed of stocks you care about.
    Get The App

  • EUR/JPY: has broken out of its 100-pip range to the downside after printing a bearish pinbar beneath resistance. Given the resurgence of dollar strength, EUR/JPY may be more appealing to bears than USD/JPY.

    • 109.32 is clearly a big level for USD/JPY as it's tired and has failed to break this level three times. The elongated bearish engulfing candle marked prominent resistance on the 1st August and prices rolled over to print a fresh YTD low. Whilst a recovery saw it recoup losses, a bearish pinbar reaffirmed the key resistance levels, and prices have retreated from it once more with a bearish Harammi pattern today.

    We could go as far to say that 109.32 could be the ‘phase one’ line in the sand so, without a deal, its hard to envisage a bullish breakout yet. Yet if we stand back there is the potential for a larger bearish wedge formation.

  • If successful, the bearish wedge projects a target near its base around 104.50. Bears could use a break of the bullish trendline, and target swing lows. However, we’d typically want to see direct losses out of such patterns (as it should be an impulsive move). So if the breakout lacks momentum, the probability of a failed pattern theoretically increases.

  • Bulls could wait for a break above 109.31. However, we’d want to see this done with decent momentum, otherwise it could just be the bearish wedge carving out another high. Obviously, we’d want to see risk-on generally for a bullish breakout which would require broad yen weakness, higher equities and yields.

    • Original Post

    Written By: City Index

    Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
    Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
    Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
    It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
    Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

    Sign out
    Are you sure you want to sign out?
    NoYes
    CancelYes
    Saving Changes