AUD/JPY Price Analysis:
- Aussie bulls firmly in control as price continues to ascend
- Ascending triangle chart pattern formation
- IG Client Sentiment (IGCS) Index favoring bulls for possible extension of upside
AUSSIE BULLS AT THE HELM
Following on from June highs, AUD/JPY has traded softer with price action steadily regaining bullish momentum. With positive COVID-19 vaccine trials resulting in a more ‘risk-on’ sentiment of recent, the Japanese Yen (JPY) as a safe haven has seen lesser interest throughout global crosses.
Chart prepared by Warren Venketas, IG
The daily chart above exhibits a steady upward trend highlighted by higher highs and higher lows (yellow). This medium-term trend continues to gain favour as the Relative Strength Index (RSI) oscillator maintains its stance above the 50 level, signifying a bullish impetus. As the RSI approaches overbought territory, shorter term traders may take caution in immediate extended upside.
AUD/JPY: 4-HOUR CHART
Chart prepared by Warren Venketas, IG
The ascending triangle represents a bullish continuation pattern when the triangle appears within a preceding uptrend as seen above. Price can be seen breaking above the horizontal resistance zone (yellow rectangle) and extending further to surpass initial resistance (75.605) at the previous swing high.
A possible benefit of the ascending triangle is that it gives traders an estimation of upside resistance by measuring the distance from the start of the pattern - at the lowest point of the rising trendline to the horizontal resistance line (A-B). That same distance can then be projected, starting from the breakout point and ending at the subsequent resistance level (C). If this logic is to be considered, bulls can look for further upside towards this level.
If this projected level is reached, further upside may be on the cards towards the prior high at 76.782 (blue), which will mark fresh yearly highs. New short-term support can be found at 75.605 (black) for bears looking to eye any price reversion.
Fundamentals supplement the technical bullish bias with the Reserve Bank of Australia (RBA) ruling out negative interest rates along with reports suggesting there is no need to print additional AUD to fund government stimulus. There are no high impact economic events scheduled for either Australia or Japan this week however, indirect events may affect the safe haven which can, and often stem from political actions or COVID-19 related news.
Stay up to date with the DailyFX Economic Calendar for all upcoming economic announcements
AUD/JPY STRATEGY MOVING FORWARD
Technical and fundamentals appear to lean toward a bullish bias for AUD/JPY. Global volatility has been declining, which further maintains the move away from safe haven assets. Going into Q3, will bulls continue to dominate?
Key trading points to consider:
- 76.782 June high
- Technical indicators – RSI moving into overbought territory
- Reduced volatility
- IGCS data
IG CLIENT SENTIMENT DATA POINTS TO TREND REVERSAL IN FAVOUR OF BEARS
| Change in | Longs | Shorts | OI |
| Daily | -37% | -9% | -19% |
| Weekly | -13% | 7% | 1% |
IGCS shows retail traders are currently marginally short on AUD/JPY, with 59% of traders currently holding short positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-short is suggestive of a price reversal to the upside.
--- Written by Warren Venketas for DailyFX.com
Contact and follow Warren on Twitter: @WVenketas
