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Greenback rally should drive Japan higher

Five markets in focus today.

USD/JPY

The Fed’s decision to taper has resulted in some big moves in the FX space; primarily USD driven. USD/JPY has been one of the biggest beneficiaries of the tapering decision and has spiked to a high of 104.21 early in Asian trade. The pair has traded at its highest level since 2008, and without doubt the BoJ would be cheering this move. Today we will get Japan’s weekly fund flows data in which further evidence of outflows would only lead to further yen weakness today and therefore deserves some attention. Any dips in the pair are likely to be used as a buying opportunity to buy the pair particularly ahead of the BoJ tomorrow.

Japan 225

With USD/JPY rallying through 104, Japan equities are in for a solid start. Yesterday the Nikkei jumped 2% and as it stands we are calling it up another 1.9% today to 15,880. In May, USD/JPY printed a high of 103.74 and at that time the Nikkei was trading just shy of 16,000. By that notion, we could see 16,000 tested over the next couple of days.

AUD/USD

The RBA will be cheering the move seen in AUD/USD overnight on the back of the Fed decision. The local currency printed a low of 0.8822 against the greenback, which saw it finally break August lows of 0.8848. AUD/USD is now starring at August 2010 lows at 0.8771 and I feel any rallies will continue to be used as an opportunity to sell.

Spot gold

The precious metal dropped on the Feds decision to start winding back on stimulus. Gold printed a low of 1216 and is on the verge of testing early December lows of 1212. In July, gold dropped to a low of 1180 and that is likely to be the ultimate target for some of the bears out there. Later today we have unemployment claims, existing home sales and the Philly fed manufacturing index out of the US. Any further signs of strength in the US economy will be negative on gold.

REA Group (REA)

The company’s stock took a beating on the back of the resignation of its CEO Greg Ellis. REA has an investors briefing today where they are likely to look at steadying the ship and outlining a succession plan. While Ellis had done well to lead REA to a long successful period, his departure is unlikely to derail the company’s progress completely. As a result, perhaps the recent selloff was overdone as some traders used it as an excuse to cash in on recent gains. REA still remains in a strong position and at some point investors will take advantage of recent weakness to accumulate the stock.

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