Featured Trade: AUD/JPY recent bounce have reached an inflection zone

AUD/JPY may stage a short-term bearish reversal below 78.75

Short-term technical outlook on AUD/JPY (Tues 08 Jan)



Key elements

  • After the “carry trade” flash crash that occurred at the dawn of the new trading year, 03 Jan 2019, the AUD/JPY has recovered by 700 pips from its low of 70.66 to print a high of 77.73 yesterday, 07 Jan 2018.
  • Interestingly, the recent bounce has led the cross pair to hover right below a significant resistance zone. The pull-back of the former medium-term descending channel support bearish breakdown that led to a downward acceleration move seen from 31 Dec 2018/03 Jan 2019 now acting as a resistance at 77.70 (depicted as dotted pink on the daily chart). The 78.75 resistance which is defined by the pull-back resistance of the former long-term cyclical “triangle range” support from Oct 2008 low, the minor descending trendline from 03 Dec 2018 high and the 61.8% Fibonacci retracement of the recent steep decline from 03 Dec  2018 high to the flash crash low of 03 Jan 2019.
  • Momentum readings remain negative. The weekly RSI oscillator has bounced up from its oversold region without any bullish divergence signal and it is now hovering right below a significant corresponding resistance at the 45 level. The shorter-term hourly RSI oscillator has posted a bearish divergence signal at its overbought region and it is now attempting to break below its support at the 60 level.
  • The significant near-term support rests at 75.20/74.90 and 74.10 (38.2% /50% Fibonacci retracement of the on-going bounce from 03 Jan 2019 low 07 Jan 2019 high).

Key Levels (1 to 3 days)

Intermediate resistance: 77.70

Pivot (key resistance): 78.75

Supports: 76.20, 75.20/74.90 & 74.10

Next resistance: 80.75/81.20

Conclusion

The recent rebound seen in the AUD/JPY seems to have reached an inflection zone for a potential bearish reversal at least in the short-term.

If the 78.75 short-term pivotal resistance is not surpassed, the cross pair may see a drop towards the near-term support at 75.20/74.90 with a maximum limit set at 74.10 in the first step.

However, a clearance above 78.75 invalidates the bearish scenario for a further corrective squeeze up towards the next intermediate resistance at 80.75/81.20 (the pull-back resistance of the former neckline support of the “Head & Shoulders” bearish breakdown & 76.4% Fibonacci retracement of the recent steep decline from 03 Dec 2018 high to the flash crash low of 03 Jan 2019).

Charts are from eSignal



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