NEWS / Foreign Exchange

Technical Formations in Dollar Pairs Suggest AUDJPY Correction

On Friday, we mentioned the AUDJPY in our daily commentary to our subscribers  as a low risk candidate for a short position and have also initiated a small short via our FxSignalZone advisory. Here, we wish to illustrate the setups we are looking for in terms of dollar majors as well as the cross pair itself.

Strong multi-year resistance at 0.80 has held up once again despite broad dollar weakness and stronger than expected employment net change.  An uptick in unemployment rate should raise a caution flag for central bank hawks whose optimistic rhetoric has helped the aussie rally.

Support turned resistance at two critical technical levels of 119.00 and 117.50 ??“ Fib retracements from the last peak in February at 121.50 ??“ suggest a pennant consolidation pattern from the initial yen rally with more USDJPY downside likely to come.  The market has priced in BOJ??™s intended measured pace for tightening going forward.  This week??™s central bank meeting and accompanying rhetoric serves as a reminder for economic recovery in Japan at the time of a slowdown in the US.

Technical resistance at former support levels here match up with Fib retracements.  A bearish divergence and evidence of a reversal in the Stochastic further suggest a low risk short opportunity at present levels.