AUD/JPY tests 80 as focus turns to Chinese GDP

Since the European stock markets closed earlier today, trading has been rather quiet. US markets are shut due to the Martin Luther King bank holiday and understandably this is having a knock-on effect on FX and commodity markets where liquidity and volumes are apparently thinner than usual. The good news is that that volatility should make a quick return due to the sheer number of top-tier economic data this week, starting with some important Chinese figures in about 8 hours’ time, including GDP.

The Australian dollar is among the currencies most vulnerable to the Chinese data and could experience high levels of volatility around the time the data is released at 02:00 GMT. This is because China is Australia’s largest trading partner. Judging by the price action in the AUD/USD and several other Aussie crosses, traders don’t seem to be too confident about the prospects of a stronger-than-expected growth in the Chinese economy. Indeed, with a number of leading indicators consistently disappointing expectations in the final three months of the year, China would have done well if it managed to grow by the expected 6.9%. The key risk therefore is that growth may have actually been weaker. But if correct, growth would be unchanged from the third quarter and only slightly below the official target of 7 per cent. Meanwhile, industrial production is expected to have risen by a slower rate of 6.0% in December, down from 6.2% in November compared to a year ago, while fixed asset investment is likely to have been unchanged at 10.2%. Retail sales are seen rising 11.3% year-over-year.

As my colleague Matt Weller pointed out earlier, the AUD/USD has broken below the key 0.6900 support to hit an almost 7-year low. Unsurprisingly, some of the AUD crosses are likewise looking rather weak – perhaps none more so than the AUD/JPY which has received a double whammy of falling commodity prices and a rise in demand for the safe haven Japanese yen.  Indeed, the AUD/JPY fell for a time below the key 80.00 handle on Friday to hit its lowest level since October 2012.

But in overnight trading, the AUD/JPY managed to stage a bit of a recovery to hit a high of about 81.25. As a well as the psychological level, the AUD/JPY found additional support from the 127.2% Fibonacci extension level of the most recent upswing at 79.65. However, as we go to press, price is again starting to bleed lower after the old support at 81.25 has seemingly turned into stiff resistance. If the selling continues, there is a risk for a bigger drop as there’s not much significant support below the aforementioned 79.65-80.00 range. Thus, if the 79.65-80.00 area breakdowns decisively, the next stop for the AUD/JPY may well be around the support trend of the bearish channel at 77.00-77.50 or the 161.8% Fibonacci extension level around 76.65. Further bearish targets could be at 75.00, the next psychological level, followed by the long-term 61.8% Fibonacci retracement of the 2008-13 upswing at 74.30/5.

As mentioned, the AUD/JPY faces resistance at 81.25. Further resistance levels come in around 82.00/05, which was previously support, followed by last week’s high of around 83.35. A potential break above the latter would be deemed a bullish scenario, especially given the fact that the RSI is currently is a positive state of divergence with price. However, for as long as the AUD/JPY remains entrenched inside its longer term bearish channel, traders may treat any potential rallies as opportunity to get in short at better levels.

Figure 1:

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.