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Japanese Yen Rallies on Risk Aversion, Australian Dollar Slips to Fresh Yearly Low

Japanese Yen Rallies on Risk Aversion, Australian Dollar Slips to Fresh Yearly Low

2010-05-25 14:35:00
David Song, Currency Strategist
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05.25_DWL1

The Japanese Yen rallied across the board following the rise in risk aversion and remains the only major currency that’s higher against the greenback on Tuesday as the low-yielding currency benefits from safe-haven flows. The USD/JPY remains nearly 80pips lower from the open after moving 65% of its daily ATR, and the deterioration in market sentiment may continue to drag the exchange rate lower as risk trends continue to dictate price action in the currency market. However, as the 30-minute RSI bounces back ahead of oversold territory, with the overnight decline stalling ahead of last week’s low at 88.97, we may see a short-term rebound in the pair, which could put prices towards the 120-SMA at 90.04 going into the Asian trade. At the same time, the USD/JPY may continue to trend lower over the near-term as the 20-Day SMA (92.34) crosses below the 50-Day SMA at 92.58, which could drive the dollar-yen to test the yearly low at 88.21 over the following month as risk sentiment falters.

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The Australian dollar tumbled to a fresh yearly low of 0.8067 as investors scaled back their appetite for risk, but we may get a corrective retracement later this week as the high-yielding currency remains heavily oversold. The AUD/USD is currently 140+pips lower on the day after moving 114% of its average true range, but the aussie-dollar appears to be coming back as the 30-minute RSI bounces back from a low of 22. As a result, the exchange rate may push higher throughout the North American session and work its way towards the 120-SMA at 0.8249 going into the Asian trade as the flight to safety tempers off. However, as the 50-Day SMA (0.9062) approaches the 200-Day SMA at 0.8972, and looks poised to cross below the 100-Day at 0.9039, the downward trend in the moving averages favors a bearish outlook for the AUD/USD over the near-term.

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Join us to discuss the outlook for the major currencies on the DailyFX Forums

To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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

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