The Japanese yen experienced further weakening on Thursday, influenced by a strong 'risk-on' sentiment across global markets. Major currencies saw gains, and equity futures worldwide moved higher. This shift in sentiment has led to notable movements in currency pairs, particularly those involving the yen, and has impacted key regional indices like the Nikkei 225.
The New Zealand dollar and Australian dollar led the charge among major currencies, both gaining strength against a softer yen. Analysts are closely watching whether this positive market sentiment can continue through the end of the week, especially with the upcoming Thanksgiving holiday in the United States.
Key Takeaways
- Japanese yen softened due to increased global risk appetite.
- NZD and AUD outperformed, with NZD/USD seeing its best day in seven months.
- Australian inflation re-accelerated, removing RBA rate cut expectations.
- Nikkei 225 futures approached the 50,000 level, tracking yen weakness.
- USD/JPY held a crucial support level at 155.89, with low volatility expected for Thanksgiving.
Yen Crosses Show Bullish Signals
Several yen crosses displayed bullish technical signals as Wall Street continued its four-day rally leading into Thanksgiving. This broad risk-on tone positioned the yen as the weakest major currency, suggesting potential for further upside in these pairs if market sentiment remains strong.
The AUD/JPY pair formed a bullish engulfing candle, closing above its 20-day and 10-day Exponential Moving Averages (EMAs). This technical pattern indicates a possible move towards the 103 level. Similarly, CHF/JPY printed a bullish engulfing day at its 20-day EMA, appearing ready to retest its previous cycle highs. A break above 196 would signal continued trend strength.
Currency Performance Highlights
- NZD/USD rose 1.4%, marking its best daily performance in seven months.
- AUD/USD gained 0.7%, its strongest day in three months.
- Australian annual trimmed mean inflation hit a 10-month high of 2.8%.
EUR/JPY also showed resilience, bouncing cleanly from its 10-day EMA and moving closer to its cycle high. A sustained break above the 182 handle is now implied. For CAD/JPY, a bullish engulfing candle formed between the 10 and 20-day EMAs and prior highs around 110.64, setting the stage for a potential run towards 112.
New Zealand and Australian Dollars Surge
The New Zealand dollar emerged as the strongest major currency on Thursday after the Reserve Bank of New Zealand (RBNZ) indicated an end to its easing cycle. While the RBNZ delivered a widely anticipated 25 basis point rate cut, it also expressed concerns about rising inflation. This hawkish tone after the cut surprised markets, leading to a significant rally.
"The RBNZ's statement, despite the rate cut, suggested a more cautious outlook on inflation, which strengthened the New Zealand dollar considerably," noted one market observer.
NZD/USD climbed 1.4%, marking its best single-day gain in seven months. The NZD/JPY pair also reached its highest level since January, benefiting from both the RBNZ's hawkish stance and the general weakness of the Japanese yen.
Inflationary Pressures in Australia
Australia's latest inflation data came in hotter than expected, further justifying the Reserve Bank of Australia's (RBA) decision to keep rates steady despite calls for further cuts. The monthly gauge of annual trimmed mean inflation rose to 2.8%, a 10-month high. Broader CPI measures also showed significant increases, with CPI less volatile items and travel at 3.7% and weighted and broad CPI at 3.5% year-on-year.
These inflation figures have effectively removed any expectations for RBA rate cuts from the futures curve. In fact, odds of a rate hike from the third quarter of 2026 are now creeping higher into 2027. The AUD/USD pair responded positively, rising 0.7% in its best day in three months.
USD/JPY Holds Key Support Ahead of Thanksgiving
The USD/JPY pair has held a critical support level around the February high of 155.89. The pair printed its most bullish candle in five sessions near this level, forming a two-bar bullish reversal pattern known as a bullish piercing line. This suggests a potential swing low near the 10-day EMA.
Volatility for USD/JPY is expected to remain low today as the United States enters the Thanksgiving holiday. Historical data since 1992 shows that the average range for USD/JPY on Thanksgiving Day is only 0.55%, with a median of 0.44%. This makes it the least volatile session among the days surrounding the holiday.
Thanksgiving Volatility
- Average USD/JPY range on Thanksgiving Day: 0.55%.
- Median USD/JPY range on Thanksgiving Day: 0.44%.
- Average returns are effectively flat at -0.01%.
The day after Thanksgiving historically shows an average return of 0.09% and a median of 0.18%, with a 66.7% win rate, the highest of the seven days monitored. This suggests a quiet session today, potentially followed by a bullish resurgence tomorrow if the seasonal pattern holds.
A break below Wednesday’s low of 155.65 could lead to a deeper pullback towards the 155 area, near the weekly Volume Point of Control (VPOC) and 20-day EMA. Conversely, if prices establish a higher low within Wednesday’s range, bulls could target the 156.80 High Volume Node (HVN) and the 157.19 high. A break above these levels would imply a retest of the cycle highs.
Nikkei 225 Tracks Yen Weakness Towards 50,000
The correlation between the Nikkei 225 and the Japanese yen has seen some shifts. While the 10-day correlation has slipped to 0.08, indicating a near absence of short-term correlation, the 20-day correlation between the Nikkei and USD/JPY remains strong at 0.81. This suggests that their medium-term trends still tend to move in tandem.
Nikkei futures have risen to a four-day high, though trading volumes have been low, which could signal a false move. Price action also appears hesitant around the significant 50,000 level. Investors may need to exercise patience, waiting for a clearer signal.
Ideally, a retracement within the prior two-day range and the formation of a higher low on lower timeframes would provide a cleaner setup for bulls. This could allow for buying dips in anticipation of a sustained break above 50,000, potentially next week, assuming prices maintain support above the November low.
