AUD/JPY stands at risk for a larger correction and may face further losses over the days ahead it struggles to preserve the holding pattern from earlier this year.
The broader outlook for AUD/JPY remains constructive as the Bank of Japan (BoJ) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield Curve Control, while the Reserve Bank of Australia (RBA) continues to endorse a wait-and-see approach for monetary policy. However, the recent weakness in the global benchmark equity indices may broadly track the near-term recovery in the Japanese Yen as market participants appear to be scaling back their appetite for risk.
After climbing to a fresh 2017 high (88.18) in February, the Relative Strength Index (RSI) warned of a near-term exhaustion as the oscillator deviated from price and largely failed to push into overbought territory. With that said, AUD/JPY has come back up against the 50-Day SMA (86.08), which has kept the pair afloat since the start of the year. However, a break/close below the moving average may open up the downside targets especially as the RSI threatens the bullish formation carried over from 2016. The next downside region of interest comes in around 84.60 (100% expansion) to 85.00 (100% expansion)
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--- Written by David Song, Currency Analyst
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