Is the Forex Market Risk-On? Yen Likely to Depreciate Amid LDP Leadership Election?【September 27, 2024】

Fundamental Analysis

• Tensions in the Middle East are worsening as Israel refuses to comply with ceasefire requests from other countries.
• The U.S. GDP results are favorable, with both the stock and forex markets showing risk-on movement.
• Today, the LDP leadership election is being held, with three leading candidates locked in a close race.

USDJPY technical analysis

USDJPY is seeing a slight upward movement, primarily driven by the positive U.S. GDP results. The GDP exceeded market expectations, which diminished the likelihood of significant interest rate cuts and expanded risk-on sentiment. Pairs like EURUSD, GBPUSD, and AUDUSD formed large bullish candles and surged.

From a technical standpoint, USDJPY is facing resistance from the 52-day moving average. There is a thick cloud overhead, and resistance is also at 145.80 JPY, limiting the upward momentum. The momentum indicator, which suggests the strength of the trend, was unable to break above 100.

Today, the LDP leadership election is scheduled. It seems there is an intense race between Ms. Takaichi, Mr. Koizumi, and Mr. Ishiba. Ms. Takaichi has publicly expressed opposition to raising the policy rate, and if she makes it to the final round, it could lead to further depreciation of the yen. We should be cautious of potential increased volatility in the afternoon.

Day trading strategy (1 hour)

Analyzing the 1-hour chart of USDJPY, there are noticeable upper wicks. If the price exceeds 145 JPY, selling pressure could increase significantly. However, with the LDP’s new president being decided today, the USDJPY market may experience volatile movements.

Will USDJPY rise in tandem with the Nikkei 225? It will be interesting to see if it breaks above the 145.20 JPY high. In any case, a change in the prime minister is considered a positive factor, so a buying strategy for USDJPY could be favorable.

Given the expected increase in volatility, it would be wise to reduce position size when entering a buy trade. If the price falls to the low 144 JPY range, I might consider buying. If it doesn’t drop, scalping or staying out of the trade could be the best option.

Support/Resistance lines

Here are the support and resistance lines to consider going forward:

• 145.80 JPY: Weekly resistance
• 146.26 JPY: Monthly resistance

Market Sentiment

USDJPY: Sell 48%, Buy 52%

Today’s important economic indicators

*Trading advice in this article is not provided by Milton Markets, but by Shu Fujiyasu Jr., a certified technical analyst.