5 Dec 2013
Will Nikkei 225 fill the gap? If failure, watch for Yen strength ST
FXstreet.com (Bali) - While the Yen crosses still look constructive from a mid term perspective, short term, there was further evidence on Wed that a correction lower may be in the horizon. That being said, it is at the Nikkei 225 chart that traders should keep an eye on to gauge the next Yen direction in Asia.
As Marc Chandler, Head of FX at BBH, notes: "Yen moves in the opposite direction of the Nikkei about 86% of the time of the last 60 days. This is the highest in 3-months and reflects a substantial tightening of the relationship since the below 30% readings a month ago. The Nikkei appears to be leading the yen."
Chandler looks at the gap lower today in the Nikkei last Wednesday, and whether or not the gap will be filled. Chandler notes that if the gap, which extends from 15579 to 15662 is not filled, "it would suggest this is a break away gap and the start of a pullback after a 12.5% rally since Nov 8 low."
In terms of targets, Chandler sees "the first retracement target near 15120 and also corresponds to the brief congestion area around the middle of November and the 20-day moving average,w ith the next retracement would project toward 14910, which is around 50% of the advance."
Fundamentally, Chandler highlights potential for Japanese investors "to take profits after this year's dramatic run up ahead of the doubling of the capital gains tax on Jan 1 to 20%."
Lastly, Japan is also set to launch a new savings scheme on Jan 1 (NISA) - tax incentives to encourage new equity investment - , which suggests to Chandler that "some households will sell shares ahead of the capital gains tax hike and roll into NISA next year."
As Marc Chandler, Head of FX at BBH, notes: "Yen moves in the opposite direction of the Nikkei about 86% of the time of the last 60 days. This is the highest in 3-months and reflects a substantial tightening of the relationship since the below 30% readings a month ago. The Nikkei appears to be leading the yen."
Chandler looks at the gap lower today in the Nikkei last Wednesday, and whether or not the gap will be filled. Chandler notes that if the gap, which extends from 15579 to 15662 is not filled, "it would suggest this is a break away gap and the start of a pullback after a 12.5% rally since Nov 8 low."
In terms of targets, Chandler sees "the first retracement target near 15120 and also corresponds to the brief congestion area around the middle of November and the 20-day moving average,w ith the next retracement would project toward 14910, which is around 50% of the advance."
Fundamentally, Chandler highlights potential for Japanese investors "to take profits after this year's dramatic run up ahead of the doubling of the capital gains tax on Jan 1 to 20%."
Lastly, Japan is also set to launch a new savings scheme on Jan 1 (NISA) - tax incentives to encourage new equity investment - , which suggests to Chandler that "some households will sell shares ahead of the capital gains tax hike and roll into NISA next year."