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AUD/JPY: Break of Support to Negate Inverse H&S Formation

AUD/JPY: Break of Support to Negate Inverse H&S Formation

2016-09-13 18:35:00
David Song, Strategist
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AUD/JPY appeared to be carving an inverse head-and-shoulders formation during the summer months as the pair failed to preserve the bearish trend from July, but a break of the August low (76.05) may negate expectations for a meaningful reversal as the broader outlook remains tilted to the downside.

AUD/JPY

AUD/JPY Daily Chart

Chart - Created by D. Song

Even though market participants speculate the Bank of Japan (BoJ) to further embark on its easing cycle at the September 21 interest-rate decision, the Yen may continue to outperform against its Australian counterpart should Governor Haruhiko Kuroda and Co. endorse a wait-and-see approach for monetary policy.

With BoJ officials tasked with delivering a ‘comprehensive assessment’ next week, the majority may lean towards retaining the status quo as the central bank continues to evaluate the impact of the negative-interest rate policy (NIRP) on the real economy. Indeed, the BoJ may keep the door open to implement more non-standard measures, but the central bank may stray away from pushing the benchmark interest rate deeper into negative territory as the unorthodox approach appears to be having a limited impact in encouraging a stronger recovery.

With that said, AUD/JPY may stay capped by the 100-Day SMA (78.37) over the near-term, with the broader outlook tilted to the downside as the pair preserves the downward trend from back in 2014, and a break/close below the Fibonacci overlap around 75.80 (23.6% retracement) to 76.10 (38.2% expansion), which coincides with the August low (76.05), may ultimately undermine the rebound from the June low (72.43).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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