AUD/JPY may have bottomed out
Fawad Razaqzada March 2, 2016 9:32 PM
<p>The Australian dollar has outperformed in recent days due mainly to the rebounding commodity prices. In addition, the RBA is no longer considered to be […]</p>
The Australian dollar has outperformed in recent days due mainly to the rebounding commodity prices. In addition, the RBA is no longer considered to be a dovish central bank which means interest rates are likely to remain at 2% for the foreseeable future. In fact, if commodities recover more profoundly and inflation picks up then calls will increase for a rate rise. What’s more, economic data from Australia has improved markedly in recent times, with the fourth quarter GDP rising 0.6% in the fourth quarter, as we found out overnight. This was more than expected. If the current “risk-on” trading environment sustains itself, then the Aussie is likely to perform better against a currency where the central bank is still dovish, such as the euro or the yen. The yen has fallen sharply over the last few days as traders continue to unwind their safe haven bets as equities and oil bounce back. Unless something happens to cause stocks to tumble once more, it looks like the AUD/JPY may have further room to the upside.
Indeed, the daily chart of AUD/JPY is beginning to look rather constructive, at least in the short-term outlook. But as it still remains inside a well-established bearish channel, while both the 50- and 200-day moving averages are pointing lower, I am not so sure about the longer term outlook yet.
The AUD/JPY’s key reversal day was on February 11 when the bears failed to hold their ground below the psychologically-important 80 handle on a closing basis. It has since had numerous unsuccessful attempts to break below this level. The failure to do so is very bullish, at least from the technical point of view. The AUD/JPY also created a bullish engulfing candlestick yesterday which is a further positive technical sign. It has since broken above the recent range highs of around 82.05, which was formerly support.
Price action is therefore looking rather bullish. The last thing the bulls need now is a close back below 82.05, the high of recent range. If seen, the AUD/JPY may have another go at 80. If it breaks below 80.00 on a closing basis then all bets are off. But while 80.00 holds and price remains above the 82.05 level then there is a good chance we will see a more profound recovery, perhaps towards – if not beyond – the resistance trend of the bear channel. Before price gets to the trend line, there are numerous other potential resistance levels to watch, including the 50-day moving average at 83.00 and the area around 85.70-86.30 which was previously support and ties in with the 61.8% Fibonacci retracement level of the most recent downswing.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.