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AUD/JPY May Rise But Hong Kong Geopolitical Risk May Curb Gains

AUD/JPY May Rise But Hong Kong Geopolitical Risk May Curb Gains

Dimitri Zabelin, Analyst

AUD/JPY Technical Analysis, US Data, Powell Testimony, Coronavirus – TALKING POINTS

  • Wall Street equity markets were aided by positive sentiment data and shrugged at virus statistics
  • GBP rose on positive Brexit news. Buoyancy during US session could spill over into Asia-Pacific
  • AUD/JPY broke out of key resistance with a bold stride – will it retest 7-month resistance again?

US equity markets ended another day on an upbeat note with the Dow Jones, S&P 500 Index and Nasdaq indices closing 0.85, 1.54, and 1.87 percent higher, respectively. Better-than-expected sentiment data helped to buoy market mood ahead of Fed Chairman Jerome Powell’s and Treasury Secretary Steven Mnuchin’s congressional testimony to the House Financial Services Committee.

Mr. Powell assured policymakers that the banking system is very strong, but they are not looking into raising bank capital standards in light of the unprecedented crisis. He warned that an avalanche of small business failures could have a significant impact on growth, making note that a second virus outbreak could undermine confidence. Stock markets trimmed some of their gains as the comments broke headlines.

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Mr. Mnuchin’s position was notably more optimistic. He said that the US is in a strong position to recover due to lawmakers’ response to the virus early on. He added that he will work with congress in July on additional fiscal measures. On the foreign front, the Treasury Secretary expects for China to live up to the legal stipulations outlined in “Phase 1” of the Sino-US trade agreement.

Foreign exchange markets reflected a risk-on tilt in market mood, with the cycle-sensitive Australian, New Zealand and Canadian Dollars closing higher at the expense of the Japanese Yen, US Dollar and Euro. The British Pound was also among the winners after EU chief negotiator Michel Barnier said a Brexit deal before the December 31 deadline was possible.

Wednesday’s Asia-Pacific Trading Session

A relatively sparse data docket places the focus for FX traders on market mood. The jubilance during Wall Street trade may echo into Asia-Pacific markets and amplify the prior session’s risk-on dynamics. Having said that, geopolitical risks in Hong Kong after Beijing’s passage of a sweeping national security bill continues to be a regional wildcard that could curb investors’ enthusiasm and pressure growth-oriented assets.

AUD/JPY Analysis

AUD/JPY may be on the verge of a bullish spike after the pair cleared descending resistance that formed at the top of the early-January swing-high at 76.320. AUD/JPY’s ascent may encounter some friction again if it retests resistance, but if the pair manages to clear it with follow-through, it could signal the start of an accelerated recovery. This may in turn inspire additional buyers to enter the market and push AUD/JPY higher.

AUD/JPY – Daily Chart

Chart showing AUD/JPY

AUD/JPY chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter

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

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