Markets to watch this week

Japan 225: Riding on weaker yen amid Japan’s political uncertainty

Headlines over the weekend show that Japan’s Liberal Democratic Party (LDP) and its coalition partner (Komeito) has lost their majority in parliament for the first time since 2009. Time is now ticking, with a 30-day clock set in motion for a new government to emerge, putting in place uncertainties around the next Prime Minister or whether the country can form a majority government amid its strong opposition.

At the Bank of Japan (BoJ)’s meeting this week, the central bank is widely expected to put rate hikes further on hold, but clues will be sought on how recent political situation may shift their views for further policy normalisation. Given that the US elections are also less than a week away, policymakers may remain vague around commitment to any specific timeline for the next rate hike, which could call for a continued drift lower in the yen and some support for the Nikkei for now.

The Nikkei is up more than 2% in today’s session, bouncing off its daily Ichimoku Cloud zone to mark a new higher low since August this year. Trading in line with the near-term upward trend may prompt buyers to eye its October 2024 high at the 40,238 level, as its daily moving average convergence/divergence (MACD) seeks to defend its zero level. Indications of sellers taking on greater control will be any reversal below today’s low, which could leave the broader upward trendline support at the 36,230 level in focus.

Levels:

R2: 40,238
R1: 39,200

S1: 37,141
S2: 36,230

Japan 225 chart:

USD/JPY: Push above resistance confluence keep buyers in control

The loss of Japan’s ruling coalition of a majority in the lower house may seem to pave the way for more expansionary budget ahead, which may complicate Japan’s inflation backdrop and suggest that the BoJ may be inclined to stay dovish, at least for now. The USD/JPY resumed its move higher to touch its highest level since July this year, effectively overcoming a resistance confluence at the 151.96 level.

This kept buyers in broader control, which may leave the 160.20 level on watch next. As long as the pair continues to trade above the broader upward trendline, the upward bias may remain. Ahead, the BoJ meeting will be the key focus, with any no-surprise in terms of rate decision and policymakers’ guidance likely to set the path for the trend to continue.

Levels:

R2: 160.20
R1: 155.20

S1: 151.96
S2: 146.26

USD/JPY chart:

EUR/USD: Can the trendline support hold?

US economic resilience calling for a less dovish Federal Reserve (Fed) and increased market pricing for a Trump presidency has prompted a surge in the US dollar this month, dragging the EUR/USD lower with a retracement of more than 3% since early-October. Dovish communications from the latest European Central Bank (ECB) meeting has left a 50 basis point (bp) December rate cut on the table, with market pricing for it at a 15% probability.

However, on the technical front, the pair is now nearing an upward trendline support at the 1.076 level, which may raise the odds for a near-term bounce amid daily oversold technical conditions. The upward trendline has been supporting a series of higher lows since October 2023 and may be crucial for the broader upward trend to hold.

If the 1.076 level holds, buyers may eye the 1.093 level as a potential target. On the other hand, failure for the trendline support to hold may point to weaker buyers, which could pave the way for the pair to retest the 1.066 level next.

Levels:

R2: 1.101
R1: 1.093

S1: 1.076
S2: 1.066

EUR/USD chart:

Coffee Arabica: Near-term rising channel formation put to the test

Coffee prices have retraced more than 10% since the start of the month, with the prospects of better weather conditions and improved supplies triggering some profit-taking following a strong run-up in prices over the past months.

A support confluence at the 243.37 level is now put to the test, which marked a lower trendline support of a near-term rising channel, alongside its daily Ichimoku Cloud support. Prices have formed a lower high over the past weeks, while its daily relative strength index (RSI) has failed to reclaim its mid-line after a retest, leaving a bearish bias in place.

Any close below last Thursday’s low at the 243.37 level could further validate strong selling pressures, which could leave the 219.90 level on the cards, where its 200-day moving average (MA) stands. Prices may have to head back above the lower channel trendline in order to signal greater buyers’ control.

Levels:

R2: 274.20
R1: 258.94

S1: 243.37
S2: 219.90

Coffee Arabica chart: