AUD/JPY on watch as risk appetite turns sour

Global stock markets sold off while safe haven gold and yen surged higher today. Market commentators blamed today’s risk-off trade on shenanigans at the White House.

Global stock markets sold off while safe haven gold and yen surged higher today. Market commentators blamed today’s risk-off trade on shenanigans at the White House. Investors wondered how the Congress will react to reports that the US President Donald Trump tried to pressure the fired FBI head to drop an investigation into his former national security advisor. Investors’ worry is that the President may have obstructed justice, which is a potentially impeachable offence. At the time of this writing, US stock indices were still trading near the day’s lows following heavy losses. In the FX markets, the US dollar was weaker across the board, even against some commodity currencies such as the Australian dollar, despite the fact that these currencies tend to underperform during periods of heightened volatility. But against the safe haven yen, almost everything is down, including the Aussie.

Aussie employment figures on tap

It is going to be a key session overnight for the AUD/JPY, in fact. As well as the on-going ‘risk-off’ trade to consider, there will also be some economic data from Australia which could impact the Aussie. Specifically, it will be employment figures for the month of April. Jobless rate is seen steady at 5.9%, while the level of employment is expected to have risen by about 4,500.

In the event that investors’ attitude towards risk improves again and the Aussie employment data comes out stronger than expected, then the AUD/JPY could bounce sharply. However, if sentiment remains cagey then even stronger-than-expected data might not be enough to underpin the AUD/JPY, although we may see a dead-cat bounce in that event.

AUD/JPY arrives at a significant technical level

Meanwhile from a technical perspective, the AUD/JPY has arrived at a key level following today’s sell-off. As can be seen, the area around 82.50 is significant for several technical factors converge here. First and foremost, 82.50 marks the bullish trend line, which has been in place since July. What’s more, the still-rising 2000-day moving average comes into play here. Traders who like Fibonacci will realised that 82.50 is in the middle of the 61.8 and 78.6 per cent retracement levels. And to top it all off, the gap that had been created a few weeks ago, has now been almost entirely filled.

So, the AUD/JPY is at a key support area. But does that necessarily mean it will bounce? Well, not quite. However that in itself could be a good trade idea to switch bias, especially given the on-going ‘risk-off’ trading environment. If a massive level like 82.50 breaks down on the AUD/JPY then we could easily see sharp acceleration in the downtrend.

Depending on the direction of the next move, there are the next support and resistance levels to watch as potential profit targets:

Support:

  • 81.50 – a pivotal support and resistance level in the past
  • 80.35 – 50% retracement of entire uptrend since July
  • 78.50 – 61.8% retracement of entire uptrend since July

Resistance

  • 83.60 – the last support pre breakdown
  • 84.50 – recent range high
  • 85.00/15 – previous support/resistance and psychological level


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (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.

For further details see our full non-independent research disclaimer and quarterly summary.