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· Levels to Watch:
-Range Top: 83.00 (Pivot, Range, Trend)
-Range Bottom: 79.00(Pivot, Range)
· Another RBA rate hike and easing concerns over Europe’s sovereign debt issues has the AUD/JPY tracking higher. This range may be a reach, but passes the eye test in this trending environment. A strong Australian economy and broader concerns over global growth and the debt issues have generated offsetting head winds anchoring Aussie crosses.
· We may be a little late to the party on this trade but the break above the 200-Day SMA at 79.84 leaves upside potential. Last time the technical level was broken, the pair traded another 300 pips to the upside.
Suggested Strategy
· Long: Place an entry at 80.90-above today’s high to confirm that bullish potential exists post RBA rate hike.
· Stop: Set the stop to 79.90 just below today’s low, as a complete reversal would be a bearish sign
· Target: The first target is 82.30 1.5 times risk, followed by 82.82-2/22 high.
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Trading Tip – The RBA raised rates for a fourth time at a time when other central bank’s remain at record lows, making the Australian dollar the undisputed high yielder. Paired with the yen-which is becoming the funding currency of choice- makes this the clear carry trade pair. Therefore, risk trends will have considerable sway over price action and must be taken into consideration when trading the AUD/JPY. Currency specific event risk for either side of the pair may have little influence going forward with the RBA rate decision in the rearview mirror. The upcoming U.S. non-farm payroll report has the greatest potential to alter risk sentiment as forecasts are for a job loss of 53,000. Increasing unemployment in the world’s largest economy could threaten to reverse the building optimism that we have seen over the past few days. Stronger than expected GDP figures from the US, UK Japan, Switzerland and Canada have raised hopes that global growth will be sustainable leading to three consecutive days of stock gains. However, the fear remains that without a rebound in consumer demand from the developed economies, global growth will stagnate.
Event Risk for Australia and Japan
Australia – The upcoming 4Q GDP release typically presents considerable event risk for the com-dollar, but following the RBA rate hike it will be assumed that the economy saw strong growth for the period. Regardless, the breakdown deserves examination to see if demand from abroad is broader than China. The January trade balance for the same reasons deserves watching but will most likely have very little impact on direction. The Business and consumer sentiment reading may have more sway as they are forward looking. If the prior three rate hikes are starting to dim the outlook for future growth.
Japan – The Japanese fundamental calendar is filled with significant release but none may have any significant impact on price action for the pair, as they will have little influence on broader risk trends. The 4Q GDP has the most market moving potential as negative growth could bring into question the yen status as a funding currency. Yet, we would probably need to see a major contraction to evoke concerns over the world’s second largest economy. Domestic CGPI will provide insight to the length of the current deflationary period. Consumer price have already started to trend higher and if we see input cost start to raise then upward pressure on inflation may continue
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