AUD/JPY may be Ready for Next Leg Lower

Markets will get their first look at how Australian consumers feel about the US-China trade deal.


Later, markets will get their first look at how Australian consumers feel about the US-China trade deal.  What is good for China is good for Australia as the economies are inherently tied through China’s demand for Australian goods.  The Westpac Consumer Confidence Change for January will be released with -0.4% expected vs -1.9% last.  In addition, the Westpac Consumer Confidence Index will be released with and expectation of 94.7 vs 95.1 last.  A reading of 92.8 in October 2019 tested lows not seen since 2015.  It will be interesting to see if the US-China trade deal increased optimism or if the devastating wildfires will have taken a toll on consumer expectations.

Although not factored into the consumer confidence data for January, one must consider how markets will react to the ongoing Coronavirus, as a small number of cases have been discovered in different counties in Southeast Asia, 1 in Australia, and 1 in the US.  The CDC in the United States said they expect to find more cases in the US. 

If the consumer confidence data is worse and if the number of cases of Coronavirus continue to rise, what will be the impact on AUD/JPY?  The Australian Dollar would likely selloff on bad data and the Japanese Yen will benefit from a flight to safety if more cases of Coronavirus are discovered. 

AUD/JPY has already been in a downward sloping channel since early 2018.  In August 2019, there was a failed break lower out of the channel that has since formed a rising wedge (which is corrective) back to the top trendline of the channel near 76.65.  In addition, this is the 61.8% Fibonacci retracement level of the from the highs in mid-April to the lows on August 23rd.  The pair is already down .8% today and is forming a long bearish candle into the bottom trendline of the rising wedge near 75.00.  The 200 Day Moving Average also comes across near 74.80.

Source: Tradingview, City Index

If AUD/JPY breaks through the 200 Day Moving Average, there is horizontal support near 74.00.  However, the target for a rising wedge is a 100% retracement of the wedge, which can be considered the next level of support down near 70.00.  There is a confluence of resistance near the 76.65/77.00 area, which is the previously mentioned 61.8% retracement level, the top trendline of the downward sloping LT channel, and the upper trendline of the rising wedge. 

Note that on Thursday Australia will release December Employment data.  Expectations are for +16,000 vs a strong print of +39,900 last.  This has potential to add more downside risk if the data is weak.  If the wedge doesn’t break on the consumer confidence data or the coronavirus news, it may break on the Employment Change. 

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