Top Story

AUD/JPY: Aussie goes from weakest to strongest but renewed selling likely

Thanks to today’s recovery in the stock markets, the rebound in Chinese yuan and inaction by the Reserve Bank of Australia overnight, the Aussie dollar has gone from being the weakest yesterday to the strongest major currency on the day so far. However, if sentiment towards risky assets turn negative again or the situation between the US and China escalates further then the Aussie could weaken again, given its close trade ties with China. What’s more, although the RBA decided to leave monetary policy unchanged, and thus disappointed some expectations for a hat-trick of 25 basis-point rate cuts overnight, it has left the door open for further rate cuts in the upcoming meetings. The RBA said: “It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”

So, the fundamental outlook on the Aussie looks far from being bright. From a tactical point of view, we continue to favour looking for bearish setups to emerge on the AUD/JPY rather than AUD/USD, given the yen’s stronger correlation with the stock markets (where things have turned quite volatile of late). We last looked at this pair on Friday and as expected, rates have dropped to test the support trend of the bearish channel from where it has bounced. However, the bears are probably not done just yet as overhead resistance levels are either approaching or being tested. The first such level is at around 72.50/90, which was being tested at the time of writing. If this area holds then we could see the bears emerge and push rates to a new 2019 low towards 71.00 next. However, I would not rule out the prospects of a deeper recovery before the selling potentially resumes. Indeed, an even stronger resistance is potentially in the 74.00-74.35 range, an area which was formerly a key support zone.

Source: Trading View and FOREX.com.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account