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Australian Dollar Pares Last Week’s Decline, Japanese Yen Rebounds Against U.S. Dollar

Australian Dollar Pares Last Week’s Decline, Japanese Yen Rebounds Against U.S. Dollar

2010-07-06 15:46:00
David Song, Currency Strategist
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07.06_DWL1

The Australian dollar pared the decline from the June high (0.8858) and rallied to 0.8547 following the shift in market sentiment, but the intraday rally appears to be tapering off as price action continues to hold below the 10-Day SMA at 0.8555. The AUD/USD is 150+pips higher from the open after moving a whopping 180% of its daily ATR, and we may see a corrective retracement going into the Asian trade as the 30-minute RSI falls back from a high of 79. As a result, the aussie-dollar may retrace the overnight advance and fall back towards the 240-SMA at 0.8440 to test for intraday support, but a break to the downside may keep the exchange rate within the narrow range carried over from the previous week. However, as the Reserve Bank of Australia maintains a neutral outlook and deems current policy appropriate, the wait-and-see approach could weigh on the exchange rate in the second-half of the year as investors scale back expectations for further rate hikes.

07.06_DWL2


07.06_DWL3

The Japanese Yen pared the overnight decline and rallied against the greenback as the U.S. dollar weakened across the board, and the exchange rate may continue to trend lower over the near-term as maintains the downward trending channel from the previous month. The USD/JPY is 30pips lower on the day after moving 81% of its average true range, but the sell-off during the North American session looks to be oversold as the 30-minute RSI dips to a low of 26. As a result, the dollar-yen may bounce back towards the 120-SMA at 87.77 going into the Asian trade, but a shift in risk appetite could push the exchange rate towards the lower bound of the downward trending channel as the Japanese Yen remains the most popular funding-currency. However, the DailyFX Speculative Sentiment index remains above 4.0, which continues to signal a bearish outlook for the USD/JPY as retail traders attempt to fade the recent downturn in the exchange rate, and the dollar-yen may look to test the yearly low at 86.96.

07.06_DWl4

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

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