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Australian Dollar May Fall vs Yen as RBA Bets, Charts Line Up

Australian Dollar May Fall vs Yen as RBA Bets, Charts Line Up

2020-01-22 10:33:00
Ilya Spivak, Sr. Currency Strategist
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AUD/JPY TRADING Strategy: BEARISH

  • Bearish Engulfing candle pattern on AUD/JPY weekly chart hints at weakness
  • Deterioration in the RBA policy outlook offering sellers fundamental backing
  • Confirmation of a breakdown initially exposes support below the 74.00 figure

The Australian Dollar may be preparing to resume the downward trend guiding it lower against the Japanese Yen since mid-September 2017. The currency mounted a spirited recovery in the second half of 2019, lifting it off decade lows to retest pace-setting resistance.

A Bearish Engulfing weekly candlestick pattern at this barrier now suggests that a corrective rebound is coming to an end as the dominant bearish bias is re-asserted. Breaking below upward-slowing support in play since early August – now just below 75.00 – may add urgency to the case for weakness.

Australian Dollar vs Japanese Yen price chart - weekly

AUD/JPY weekly chart created with TradingView

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A dovish shift in the outlook for RBA monetary policy establishes the fundamental backdrop. A steep downshift in Australia-Japan 10-year government bond yield spread reflected a defensive pivot from the central bank. Tellingly, hopes for easing also lifted Australia’s benchmark S&P/ASX 200 index.

The rebound in market-wide risk appetite in the fourth quarter encouraged carry trade demand and lifted AUD/JPY, but the underlying return stream has hardly improved. Indeed, the Aussie’s yield advantage now stands within a hair of multi-year lows set four months ago.

AUD/JPY versus S&P/ASX 200 stock index, Australian 10-year bond yield

AUD/JPY weekly chart created with TradingView

That may take center stage if sentiment falters. This is an ever-present concern as traders juggle a multitude of diverse risks, from the outcome of the US presidential election to swelling tensions in the Middle East and a worrying coronavirus outbreak.

Zooming into the daily chart for a timelier look, the 73.36-76 appears to mark initial support if the bounds of the near-term uptrend give way. On the topside, long-term trend resistance is reinforced by a horizontal barrier in the 76.16-55 zone that has capped gains since May.

Australian Dollar May Fall vs Yen as RBA Bets, Charts Line Up

AUD/JPY daily chart created with TradingView

AUD/JPY TRADER SENTIMENT

AUD/JPY BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -2% -18% -9%
Weekly -5% -14% -8%
What does it mean for price action?
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AUD/JPY TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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