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AUD/JPY bounces off key support

The AUD/JPY has bounced strongly off a key support level today, suggesting that the recent downward trend may have come to a halt, at least for the time being anyway. We have also seen a correspondingly sharp rally on Wall Street, suggesting that the appetite for risk is still there despite the recent weakness and uncertainty about French elections on Sunday. But for now, we will take this bounce with a pinch of salt as it could be a ploy to trap the bulls before the next leg down.

As far as the AUD/JPY is concerned, well there has been a classic bounce from an old key resistance level of 81.50, which has turned into strong support. The unit has bounced a cool 100 pips off this level, though it was coming off the highs at the time of this writing. In addition to the horizontal support level, there is a vertical trend line and the 200-day moving average coming in close proximity. Thus, the area around 81.50 represents an important technical juncture, which means today’s bounce in AUD/JPY could merely be a technical bounce rather something more significant. But with price now being above Wednesday’s high and the 200-day average, both at 82.15, this level may turn into support upon a potential retest. If so, the AUD/JPY could climb towards, and possibly beyond, the next resistance levels at 82.80 and then 83.80.

But if the 82.15 level fails to hold as support then there is a good possibility that the AUD/JPY may go on to break below that critical 81.50 support at the second time of asking. Should that happen then we will be on the lookout for a deeper correction, possibly towards the 61.8% Fibonacci level at 78.50 or all the way to the psychological level of 75.00 next.

Source: eSignal and FOREX.com

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