AUD/JPY may face range-bound conditions going in Japan’s 2016 fiscal year-end as it struggles to break the monthly opening range, but the broader outlook remains constructive as the pair preserves the bullish formations carried over from earlier this year.
The lack of momentum to test the 87.70 (61.8% expansion) hurdle may keep AUD/JPY within a narrow range especially as the Relative Strength Index (RSI) preserves the downward trend carried over from December. However, the aussie-yen exchange rate appears to be on the cusp of a larger move as the 50-Day SMA (86.42) continues to offer support, with price & the RSI approaching the approaching the apex of a near-term wedge/triangle formation.
With that said, the rebound from trendline support accompanied by the bullish engulfing (outside-day) candle keeps the topside targets in focus over the remainder of the month, with a break/close above 87.70 (61.8% expansion) opening up the next region of interest around 88.20 (38.2% expansion) followed by 88.60 (50% expansion).
With both the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ) showing little signs of moving away from their current policy stance, market sentiment may continue to influence AUD/JPY, with the global benchmark equity indices highlighting a similar behavior as they largely retain the range from earlier this month.
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At the same time, the DailyFX Speculate Sentiment Index (SSI) suggests retail traders are caught on the wrong side as the crowd remains net-short since March 10 when AUD/JPY traded near 86.43;price has moved 0.7% higher since then. Current data shows 43.3% of traders are net-long with the ratio of traders short to long at 1.31 to 1. The number of traders net-long is 13.6% higher than yesterday and 1.2% lower from last week, while the number of traders net-short is 20.3% higher than yesterday and 4.3% higher from last week. May see the SSI offer a contrarian signal as the recent build in net-short interest appears to be accompanied by a mild appreciation in AUD/JPY.
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--- Written by David Song, Currency Analyst
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