The FX market has fallen out of love with the equity market/JPY-crosses correlation to a large extent. Certainly earlier in the year we saw pairs like AUD/JPY and EUR/JPY gallop higher after big gains on Wall Street but this has not been the case for the last 3 or 4 months. AUD/JPY certainly has eked out some gains (unsurprisingly given the rate differential) but they have been relatively muted and EUR/JPY hasn’t really moved higher at all in the last 8 months despite strong percentage gains on international stockmarkets. This correlation, if not dead, is certainly struggling to stay relevant.
Nevertheless traders are traders and old habits die hard. If the Nikkei opens close to 2% higher then pairs like EUR/JPY and particularly AUD/JPY should also move higher, at least for the first part of the session. This in turn will focus attention on the .9325 level in the AUD/USD which we mentioned earlier.
