USD/JPY Leads a Huge Risk On Rally

U.S. Dollar Trading (USD) a very strong NFP had limited impact on the Forex markets Friday but stock markets did rally and we opened the Asia session is positive mood Monday. Things kicked into high gear however after the Japanese elections sent the Nikkei on a 500 point surge on expectations of a major new government stimulus package. After some reluctance USD/JPY went on a sharp short squeeze from 100.80 to 102.80 and lifted all global markets and linked Yen crosses.

The Euro (EUR) Euro was remarkably stable given the USD strength coming through from USD/JPY buying and support at 1.1000 has continued to hold. Markets are still hesitant to pick a direction for the Euro with festering European banking crisis in the back ground and potential contagion from Brexit keeping natural Euro buyers at bay.The Sterling (GBP) Post Brexit volatility showed itself yesterday through a sharp rally in GBP after it became clear that Theresa May would be the new PM. The end to the uncertainty has help the GBP/USD rally to 1.3000 and GBP/JPY the real star of the market yesterday rally 300 pips to Y133.50. Bank of England easing expectations for Thursday MPC meeting is the biggest event this week and if aggressive action is not seen a further recovery rally is likely.

The Japanese Yen (JPY) USD/JPY stole the show with PM Abe big election win opening the door to mandates for more aggressive abenomics and further stimulus from the BOJ. A huge stimulus package is expected to be announced in coming days/weeks that will attempt once again to lift the Japanese economy out of deflation and hopefully weaken the Yen.The Australian Dollar (AUD)​ AUD/USD did well but struggled to make further gains even in the risk on environment as Oil continued to fall after breaking $46 last week. The other commodity currencies including CAD and NZD were more aggressively sold against the USD but everything still enjoyed gains against the JPY as the stock market surge trumped Oil's decline. Perhaps the AUD's outperformance was due to some clarity on the political front as local elections saw the incubate PM remain in control. Resistance for AUD/USD is still seen at 0.9650 and markets are now eagerly awaiting Thursday's Jobs data as the next catalyst.

Stocks Indices(DAX) Continued Friday's Rally adding another 200 points to test 9800 before running out of steam as US stocks stalled with Oil's decline. Key resistance at 10000 is just above us and as US stocks break out and Nikkei and FTSE both enjoy major rallies it is likely the DAX will be dragged higher as well. US Stocks (DOW) with the S&P breaking all time highs on Friday the Dow is now comfortably above 18000 and likely to retest the all time highs at 18360. Sentiment is relentlessly positive and stunning given all the potential negative brexit related issues in Europe.

Pairs to watch

USD/JPY to test 103.30 as Short Squeeze continues?

DOW30 To test 18360?

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By Anthony Darvall (TonyD)