USD/JPY taps 145, ASX 200 surges with seasonality fully behind it

Research
Matt Simpson financial analyst
By :  ,  Market Analyst

Market Summary:

  • SPX 500 Emini futures touched a record high on Tuesday Wall Street tracked the path of Santa’s rally, which also saw the Dow Jones rise for a ninth consecutive day to its own new record high. The Nasdaq 100 cash index also hit a fresh new high.
  • AUD/USD reached a 5-week high as it tracked risk assets and enjoyed the weaker US dollar, despite Fed member Bostic pushing back on an early rate cut
  • WTI crude oil extended its countertrend bounce and rose for a fifth day in line with my bullish bias outlined at the beginning of the week. Technically it appeared oversold, and geopolitical tensions around the Red Sea has brought with it concerns over supply.
  • USD/JPY rose to 145 by Wednesday’s high following the BOJ’s decision to do absolutely nothing. This is another market flagged as oversold ahead of the meeting. And while economists had fully backed no action, there was some excitement in market pricing that the BOJ might hike their interest rate looking at how well USD/JPY bounced on Wednesday.
  • USD/CAD fell to a 4-month low as inflation data for Canada was hotter than expected, with annual trimmed mean, median and headline CPI all failing to drop in line with the consensus estimates. Whilst this does not necessarily mean a BOC hike is imminent, it serves as a reminder as to why Governor Macklem’s said last week that the central bank “may be done, may not be done” in regards to further tightening.
  • The OIS curve continues to point towards 5% being the peak rate and cuts to begin next year. Let’s see if USD/CAD can build a base around 1.33, as this move lower could be getting ‘long in the tooth’.

 

20231220movers

 

Events in focus (AEDT):

  • 10:30 – Australian leading index (Westpac-Melbourne Institute)
  • 10:50 – Japanese trade balance
  • 11:00 – New Zealand’s budget balance, economic forecasts
  • 18:00 – UK inflation, producer prices
  • 01:00 – SNB quarterly bulletin

 

 

ASX 200 seasonality patterns in December

We see a similar pattern on the ASX 200 as we see elsewhere this time of the year; strong gains. Taking data from April 2000, the ASX 200 has delivered a bullish monthly close 73% of the time. But if we drill down to daily returns for December, December 24th stands out for its 87.5% win rate alongside one of the strongest daily performances (average and median). In fact, the win rate is above 50% between December 17th to December 30th, the 27th also delivering notably strong returns on average and median alongside a punchy 80% win rate.

 

20231220asxseasonality

 

The ASX 200 I son track for a fourth consecutive bullish week with bullish momentum clearly on its side. The ASX now trades less than 2% from its record high, and with seasonality on its side little in the way of topping clues, it could be heading straight for that record high and for the 7700 handle. Pullbacks towards yesterday’s low could appeal to bulls, with 7500 also making a likely support level. 7600 is the next upside target, ahead of 7646 and 7700.

 

20231220asx200

 

USD/JPY 4-hour chart:

USD/JPY has played quite nicely with my analysis this week, rising towards 145 following the BOJ’s ‘surprise’ decision of not changing rates (for a seventh year running…). The next big event for this pair is the US PCE inflation report on Thursday (early hours Friday for Sydney). Given the Fed are now pushing back against an early cut next year, then I suspect downside potential for USD/JPY may be limited and it is vulnerable to another leg higher. Take note that the 1-week implied volatility level has narrowed to indicate market expectations of lower volatility for the pair.

 

With RSI 14 above 50 and trending higher and RSI back below 50 (but not oversold), I’m now looking for prices to retraces towards 143 / 143.16. If it gets there during low volatility trade, the bias is bullish while prices remain above the 142.26 lows and for another crack at 145.

 

20231220usdjpy

 

 

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

 

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