Forex Online: Masakazu Sato's Practical Trading Techniques | Technical and Fundamental Analysis Forecasting the Future of the 3 Major Currencies [This Month's Theme | Outlook and Expected Price Movements for the Foreign Exchange Market in the Second Half
The second half of 2018 is about to begin. Since last year, the forex market, centered on dollar/yen, has been stuck in a stalemate, but nearly two years have passed since the Trump market of autumn 2016, and it would not be surprising if a strong trend in either direction—yen appreciation or yen depreciation—emerges. In preparation for FX trading in the second half, this issue will look at the market outlook for USD/JPY, EUR/JPY, and AUD/JPY, as well as the target high and low for the latter half of 2018.
*This article is a reprint/edit of FX攻略.com’s July 2018 issue. Please note that the market information written in the main text may differ from the current market.
Profile of Masakazu Sato
Sato, Masakazu. After working at a domestic bank, he joined Paribas Bank (now BNP Paribas) in France. He has served as interbank chief dealer, head of the funds department, senior manager, and other roles. Subsequently, he became senior analyst at FX Online, which boasts the largest annual turnover. He has been involved in the currency market for more than 20 years. He appears on Radio Nikkei's “Stock Complete Live Commentary! Stock Show↑,” and on Stock Voices’ “Market Wide—Forex Information,” and he regularly distributes market information to Yahoo! Finance.
Trump’s Unpredictability as the Primary Source of the Forex Market’s Stalemate!?
The second half of 2018 is about to commence. This time, we will look at the market outlook for the three major currencies—USD/JPY, EUR/JPY, and AUD/JPY—for the second half of 2018, and the expected price movements.
In the first half of 2018, wage growth exceeding expectations was confirmed in the February US employment report, pushing US long-term interest rates close to 3%. With accelerating inflation and rising interest rates, the NY Dow plunged by more than 1,000 points in a single day, causing financial markets to reel at the start of the year.
What exacerbated this was President Trump’s rhetoric. The tariffs on steel and aluminum, resignations and removals of moderate ministers and the appointment of hardline conservatives, direct talks with North Korea and bombing in Syria raising geopolitical risks, and the FBI investigation into alleged Russian collusion during the presidential election—these factors influenced the currency market as Trump intensified his effort to win popular support ahead of the November midterm elections.
From February to March, a risk-off trend in the yen appreciated, but from March to April there is a typical annual anomaly of yen weakness, and the USD/JPY sharply found a bottom and turned up. Cross currency pairs and EUR/USD showed a clear reversion to an uptrend, but later the market remained range-bound.
Because a single word or single tweet from President Trump can drastically change market directions, investors have been reluctant to hold long-term positions and are moving to lock in profits early, which has contributed to the market’s stalemate. The unpredictability of Trump’s statements keeps investors in check. Nevertheless, as we head into a volatile summer market, there is a realistic chance that the forex market could experience sudden shifts again.
Chart ① shows the three technical indicators I often use for trend judgment—moving averages, MACD, and the Ichimoku cloud—across three timeframes: monthly, weekly, and daily for USD/JPY and EUR/JPY. The clearest sign of the market’s stalemate is that on all three timeframes the MACD lines are near zero and entangled with the signal lines, showing a lack of a clear trend in USD/JPY and EUR/JPY.
USD/JPY, on a monthly basis, has fallen from the January 2017 high in the 118 area into the cloud, and on a weekly basis has already dropped below the cloud. On a daily basis, it sits well below the 200-day moving average, but since April it has risen to break through the lower bound of the cloud, entering and then breaking out of the cloud, suggesting a potential bottoming and reversal.
EUR/JPY, on a daily basis, fell below the 200-day moving average in February, but since mid-April has risen above it again. Ichimoku also shows a move into the cloud from below, signaling a potential re-acceleration. On a weekly basis, the 52-week moving average and the cloud underneath provide support for a continued upward trend. On a monthly basis, it trades well above the 24-month moving average, and a cloud breakout is nearing, indicating that the uptrend since spring 2017 remains intact.
