AUD JPY

AUD/JPY and EUR/JPY are sandwiched between range highs and uptrend support, meaning traders should be on alert for potential bearish and bullish breakout this week with big event risk in the United States and Europe approaching fast.

AUD/JPY and the ASX 200 look set to diverge with the former strongly hinting at a swing low and the latter failing to hold above 7900 on Tuesday.

Almost by stealth, the unloved and under pressure Aussie and Kiwi are not far off hitting decade highs against the yen. With the near-term price action in AUD/JPY and NZD/JPY pointing to upside, and with momentum indicators sending the same message, the risk of a topside break appears to be growing.

A broadly weaker US dollar helped AUD/USD rise at its fastest pace in twelve weeks, and given the record level of net-short exposure among asset managers, AUD/USD could have further upside potential.

Unless we see a big upside surprise in Thursday's PCE inflation report it may be difficult for US bond yields to continue pushing higher, limiting the fuel that helped propel the US dollar higher over the past two months.

It could be an interesting week for the Australian dollar if caught between the crossfire of the RBNZ meeting, Fed talk and US inflation data. We also have an Australian inflation report to throw into the mix for good measure.

AUD/JPY has fast approached a pivotal level to hint that an eventual breakout could be on the cards, even if not immediately. The ASX 200 looks sets to bounce after positive earning from Nvidia lifted Wall Street futures after market hours.

Australia's unemployment rose to a three year to knock AUD pairs from their perches. But in particular I'm keeping an eye on AUD/JPY which has reversed at a key resistance area.

Whilst the Asian session started off quietly enough, slowly but surely dark clouds have begun to form to provide an ominous feeling that something could crack. US futures are pointing lower, AUD/USD and the ASX 200 tapped fresh YTD lows and AUD/JPY – a classic barometer of risk - extended its losses for a second day to a 7-day low.

Geopolitics, inflation reports and sentiment towards Chinese markets will likely dominate proceedings for AUD/JPY and crude oil this week, putting their respective uptrends to the test during a time when investor risk appetite is particularly weak.

For ASX 200 and AUD/JPY, until the geopolitical situation in the Middle East improves, adopting a sell-on-rallies approach remains the most appropriate strategy for those and other cyclical asset classes.

Money markets are betting the Fed rate hike cycle is over with up to 100 basis points of cuts expected in 2024, boosting cyclical assets classes such as the ASX 200 and AUD/JPY.

It has been another volatile week for markets overall. But based on the principle that markets (rarely) move in a straight long for extended periods, perhaps we're due some mean reversion. Gold might tick that box above 1800, and if risk-off returns then AUD/JPY around resistance has caught our eye.

The combination of a deteriorating macroeconomic backdrop, the first monetary policy decision from a new RBA governor and threat of market intervention from the Bank of Japan has created an interesting mix for the AUD/JPY.

Having been driven by rate differentials for much of the past three years, AUD/JPY is evolving into an effective way to express a view towards China’s outlook that does not involve the US dollar.

China’s August “data dump” has come in ahead of expectations, solidifying the view activity in the world’s second-largest economy is beginning to stabilise.

With the Fed meeting behind us, the focus now shifts to ECB and BOJ meetings ahead of the weekend. Soft AU inflation helped send AUD lower, but can an upwardly revised inflation forecast from the BOJ tomorrow help topple AUD/JPY? As we see in today’s chart, an important swing high appears to have formed.