AUD/JPY in for rollercoaster ride as focus turns to Aussie CPI, RBA and BOJ

<p>The Australian dollar has been fairly stable recently, and it has actually risen against weaker rivals such as the New Zealand dollar and Japanese yen. […]</p>

The Australian dollar has been fairly stable recently, and it has actually risen against weaker rivals such as the New Zealand dollar and Japanese yen. However, that could all change if investors start to dislike risk, if, for example, U.S. elections or disappointing corporate earnings cause global equities to retreat. There is also a risk that tonight’s CPI inflation figures from Australia will disappoint expectations, while the Reserve Bank of Australia may surprise the market with a dovish policy statement next week. Among the most interesting Aussie pairs to watch is the AUD/JPY, for there is also some key Japanese data to consider at the end of this week, ahead of the Bank of Japan’s policy meeting next week.

But the immediate focus will be on Aussie CPI, which will be released in the early hours of Wednesday. Headline Aussie CPI is expected to have risen by 0.5% quarter-over-quarter in Q3, with the so-called “trimmed mean” version – which excludes the price changes of the volatile 30% of goods and services purchased by consumers – likely to have increased by 0.5%. Any noticeable deviation from these figures may cause a sharp move in the Aussie overnight.

Ahead of all the above-mentioned fundamental events, the AUD/JPY has reached a key juncture today: 0.80. Around this psychologically-important level, we have several other technical factors also converging, above all the 200-day moving average. This particular moving average has offered strong resistance in the past and is still pointing lower. There is also a bearish trend line to consider which has been in place for almost a year now. What’s more, this 0.80 area had been previously resistance, too. So, there are lots of reasons why the AUD/JPY could retreat from this level. If so, the bears would then like to see the breakdown of some key supports, starting with 78.85.

But the bulls would argue that the recent trend has been bullish, as highlighted for example by AUD/JPY making higher highs and higher lows on smaller time frames. In addition, the 50-day moving average has started to point higher and price is holding above it currently. A convincing break above the 0.8000-35 resistance area is what is required for this group of market participants to become more vocal. If seen, we could then see the start of a more significant rally towards the Fibonacci levels shown on the chart.

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