The Japanese equity market is tracking sideways at present, with the 20-day moving average highlighting this perfectly. As such, I would look at using Bollinger Bands and trading a range of 15,475 to 15,120 at present. Earnings are coming in thick and fast in Japan and so far we have seen really good sales growth, which should continue to support. At 09:30 we get July inflation and economists expect the print (ex-food) to drop a touch to 3.3%, from 3.4% in June. Recall that the BoJ will subtract two percentage points off this measure for the impact of the sales tax, so it will worry a few that inflation is heading back towards the 1% area. A weaker-than-forecast CPI print would be positive for the equity market as traders will increase assumptions around further easing from the BoJ.
Overnight we saw a positive weekly jobless claims in the US which has seen better buyers of USD/JPY. The pair is now threatening to break above the downtrend drawn from the June 4 high and a break here could see the pair regain the 200-day moving average at 102.07. In US trade tonight we get durable goods, but specifically I will be looking at capital goods orders, which are expected to increase 0.5%. Signs of CAPEX growth are USD positive.
This has been firmly on the radar this week and the bears are in full control here. The pair has closed below the 61.8% retracement of the June to July rally (at 0.8568) and traders will now be eyeing the June low of 0.8400. Rallies look like potential selling opportunities, so it’s worth pointing out that on the hourly chart there are signs of divergence between price and the RSI.
While GUD Holdings will attract some focus as it kicks off the start of the Australian earnings season, it’s worth highlighting the strong price action in ORI of late. Interestingly though the stock closed above its upper Bollinger Band, while both its RSI and stochastic are at extreme highs. While the trend is higher if we see a slight pop in the share price on open traders could potentially look at shorting the stock, placing a stop loss at $23.50 (just above the January downtrend), for a move back to the 20-day moving average at $20.72. This is a simple mean reversion strategy.