AUDJPY has been consolidating inside an ascending triangle for a while and is currently testing the bottom of the pattern.
A bounce off support might take place since stochastic is moving up from the oversold area and reflecting a pickup in buying momentum.
In that case, AUDJPY could head back to the top of the triangle around the 92.00 major psychological resistance. The moving averages are making an upward crossover, signaling that a longer-term climb is in order and that an upside breakout might take place.
RSI is on middle ground and barely offering any strong clues on price action. This could also mean that consolidation could carry on before the pair picks a clearer direction eventually. Note that the chart pattern is approximately 300 pips tall so the resulting breakout could last by the same amount.
There are no major reports lined up from both Australia and Japan for the rest of the week, leaving risk sentiment as a major driver of price action. Commodity price trends could also push this pair around, with another potential decline in gold prices likely to trigger a downside break.
Traders seem to be favoring the Japanese yen at the moment, as the US FOMC minutes showed that policymakers aren’t too eager to hike interest rates just yet. This could leave the Japanese yen as the preferred safe-haven currency in times of risk aversion.
Other risks for this trade include any surprise announcements from the Chinese government or central bank. Keep in mind that they’ve been trying to shore up the economy through stock market stimulus or yuan devaluation recently, which might wind up supporting demand for Australia’s raw material exports later on. For now, any signs that the Chinese officials are pre-empting a slowdown in the economy might be negative for the Aussie.
By Kate Curtis from Trader’s Way