Australian Dollar Forecast Versus Yen, AUD/JPY Declines to Resume?

2019-10-15 04:45:00 Daniel Dubrovsky, Contributing Senior Strategist

Australian Dollar, AUD/JPY - Talking Points

Australian Dollar may fall if US and China backtrack trade progress
Anti-risk Japanese Yen may rally. AUD eyeing jobs data, China GDP
AUD/JPY may breakout below Symmetrical Triangle, extend declines

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Australian Dollar Fundamental Outlook

The sentiment-linked Australian Dollar has been making cautious upside progress against its major counterparts as of late. This occurred alongside a pickup in risk appetite amid hopes of a US-China trade deal at the end of last week. But its advance, particularly against the anti-risk Japanese Yen, is vulnerable to a sudden U-turn in trade talks and upcoming local and external economic data.

Back in June at the G20 Leaders Summit in Japan, the world’s largest economies reached a tariff ceasefire. This fell apart in the ensuing months as key fundamental differences were not reconciled, such as intellectual property, leading to escalation such as the US labeling China a currency manipulator. Thus, traders ought to proceed last week’s developments with a grain of salt.

The MSCI Emerging Market Index has thus far declined since Friday, repeating similar disappointing price action in the aftermath of the G20 Summit about 4 months ago. A signature between the US and China could be reached at the APEC meeting in Chile next month. But until then, risk trends will continue to be left exposed to ongoing developments between Washington and Beijing.

In the near-term, the Australian Dollar has local jobs data and Chinese GDP waiting for it. The RBA has made its point to highlight the importance of labor developments for its trajectory of interest rates. Meanwhile, economic news flow out of China continues to disappoint relative to expectations. As a China liquid proxy, the Aussie may weaken if worse-than-expected GDP fuels RBA rate cut bets further.

Join me at 1:45 GMT on Friday for LIVE coverage of China GDP where I will be discussing the Australian Dollar and ASEAN FX

Australian Dollar Technical Outlook

Focusing on technical analysis, the AUD/JPY may soon find a breakout of a Symmetrical Triangle candlestick pattern. This is typically a continuation formation, and in this instance may resume the downtrend that ensued back in April. Though at times, Symmetrical Triangles can preclude a reversal of the preceding trend. An example of this can be found recently in USD/SGD.

The floor of the triangle is the rising trend line from late August which intersects with resistance from late July – red area on the chart below. A breakout under the pattern may pave the way for a retest of 70.66, a price level last reached back in 2009, before perhaps taking out 69.97. Otherwise invalidating this bearish setup, and perhaps leading to a bullish reversal, places the focus on the September highs (73.93 – 74.47).

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