Technical Sentiment: Bearish
Key Takeaways
It was a risk-off day on Thursday as investors shy away from the yield that AUD provides, preferring the safety of US bonds instead. AUD/JPY sell-off continued for a second day, and it has now reached a point where it is testing the support trendline of this year’s bullish channel and the 50-Day Moving Average. If price fails to rebound higher immediately, then the uptrend will be invalidated and a major correction will ensue.
Technical Analysis
Due to the recent failed attempts to beat April’s high, AUD/JPY is currently forming a short-term descending broadening wedge pattern. Movements have so far remained contained within this year’s bullish channel, but that may not be the case for long if the sell-off continues.
AUD/JPY already broke below the support trendline before climbing back above 95. Even so, with the 50-Day Moving Average offering immediate support, it is imperative we see Thursday’s low of 94.71 broken before we exclude a bullish bounce.
Below 94.71 and the 50-Day Moving Average, the first target will be 93.90-94.04 (support of the wedge formation and an old resistance which may turn into support). Alternatively, at 93.27, where the 100-Day Moving Average coincides with 61.8% Fibonacci retracement on March-April upswing, we could see a temporary bounce and small correction upwards.
The upside is currently capped around 96.09. Having made two Lower Highs already, and with no bullish price action patterns, there is no way to call for a return of the uptrend until AUD/JPY actually forms a Higher High above 96.09. Above this level and on a break of April’s high of 96.50, the uptrend could extend towards 98.15 (61.8% Fibonacci on the downtrend from 105.42 to 86.40) and 99.15 (current resistance of this year’s bullish channel).
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets