Chart of the day AUDJPY faces further potential short term downside

In light of rising geopolitical risk caused by the on-going tensions between U.S. and North Korea, higher yielding currencies against the safe have JPY tend to have significant movements. Let’s us take a look at the AUD/JPY cross pair from a technical analysis perspective.

Short-term technical outlook on AUD/JPY

Key technical elements

• Since its low of 72.53 printed on 24 June 2016, the AUD/JPY cross pair has been trading within a bearish “Ascending Wedge” configuration where it has staged a retreat below the medium-term resistance of 89.45 (upper boundary of the “Ascending Wedge” (see daily chart).
• The daily RSI oscillator has exited from its overbought region and broke below a corresponding trendline support. It shows further potential downside before it reaches an extreme oversold level of 21%. These observations suggest that the downside momentum of price action remains intact and the AUD/JPY may see a further decline to test the lower boundary (support) of the aforementioned “Ascending Wedge” at 84.40 in the medium-term (1 to 3 weeks).
• In the shorter-term, the AUD/JPY is now evolving within a bearish descending channel in place since 27 July 2017 high. Yesterday’s rebound in price action from the 86.27 minor low has taken the form of a bearish continuation pattern called “bearish flag”. The upper boundary of the “flag” confluences with the upper boundary (resistance) of the aforementioned descending channel at 87.40 (see 1 hour chart).
• The key short-term support rests at the 85.90/65 zone which is defined by the lower boundary of the short-term descending channel, a Fibonacci cluster and the minor swing low areas of 05 July/07 July 2018.

Key levels (1 to 3 days)

Intermediate resistance: 87.10

Pivot (key resistance): 87.40

Supports: 86.27 & 85.90/65

Next resistance: 88.00

Conclusion

Therefore as long as the 87.10 pivotal resistance is not surpassed, the AUD/JPY is likely to stage another potential bearish impulsive downleg to retest the intermediate support of 86.27 before targeting the next support at 85.90/65.

However, a clearance above 87.10 may invalidate the preferred bearish bias for an extension of the corrective rally towards the next resistance at 88.00 (minor swing high areas of 04 Aug/07 Aug 2017) in the first step.

Charts are from eSignal

Disclaimer

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. City Index recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. GAIN Capital Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.