USD/JPY Struggles to Preserve Bullish Series Ahead of May High

Talking Points:

- AUD/USD to Search for Resistance as Near-Term Recovery Takes Shape.

- USD/JPY Struggles to Preserve Bullish Series Ahead of May High (111.45).

AUD/USD Daily

Chart - Created Using Trading View

• AUD/USD may mount a larger rebound ahead of the holiday weekend in the U.S. as it carves a near-term series of higher highs & lows, with the Relative Strength Index (RSI) bouncing back from oversold territory, but the failure to preserve the upward trend from earlier this year points to a more material shift in market behavior, with the broader outlook turning increasingly bearish for the pair especially as the momentum indicator highlights a similar dynamic.
• The Reserve Bank of Australia (RBA) is widely anticipated to keep the benchmark interest rate at the record-low of 1.50% at the last 2016-meeting on December 6 as the central bank argues inflation is ‘expected to pick up gradually over the forecast period,’ but more of the same fromGovernor Philip Lowe and Co. may do little to prop up the exchange rate especially as the Federal Reserve appears to be on course to deliver a year-end rate-hike; nevertheless, the fresh projections from Fed officials may undermine the bullish sentiment surrounding the greenback should the group of policymakers continue to cut the long-run interest-rate forecast.
• Will keep a close eye on the former-support zones for new resistance as AUD/USD looks poised for a larger recovery, with the first region of interest coming in around 0.7450 (38.2% retracement) followed by 0.7500 (50% retracement).

USD/JPY Daily

Chart - Created Using Trading View

• The USD/JPY rally appears to be losing steam as the pair fails to test May high (111.45) and struggles to extend the recent series of higher highs & lows, but the exchange rate may hold above 110.20 (50% retracement) over the coming days as risk appetite picks up, while the RSI continues to sit in overbought territory; may see a larger pullback in the exchange rate once the momentum indicator pushes below 70.
• The advance across the global benchmark equity indices may keep USD/JPY afloat as the turn in market sentiment weighs on the Japanese Yen, while rising U.S. yields may continue to boost the appeal of the greenback as Fed Funds Futures continue to price a 95% probability for a December rate-hike.
• USD/JPY may make another attempt to test the May high (111.45) especially as the RSI holds above 70, but a closing price below 110.20 (50% retracement) may stoke a larger pullback in the exchange rate, with the next downside target coming in around 108.40 (50% retracement).

• The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd is net-short USD/JPY for the first time since July 20 after hitting a 2016-extreme of +6.04 in September, while traders have been net-long AUD/USD since November 9.
• USD/JPY SSI sits at -1.51 as 40% of traders are long, with short positions 30.2% higher from the previous week, while open interest stands 13.9% above the 30-day average.
• AUD/USD SSI sits at 2.11 as 68% of traders are long, with long positions 29.9% higher from the previous week, while open interest stands 7.3% above the monthly average.

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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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