AUDJPY Forex Analysis
The Australian dollar, the commodity sector, and the US dollar are closely tied, as their underlying macro moves paint a picture of the state of global trade and economic prosperity. The yen is considered a safe haven for money to flow towards when the markets fear or find uncertainty with flashpoints that lead to greater market turmoil.
Of late the US dollar has been finding itself bid up, even though the coronavirus vaccinations across the major economies is underway, and for the most part, the economies are trying to open up more. The main drag is due to Europe suffering their 3rd wave on the back of what can only be described as a vaccine nightmare. However, assuming they can get back on top of the disease they will be back on track within the next couple of months.
China is still the main driver for commodity flows and they’re still looking to keep GDP annual growth around 6%, and today’s economic data showing industrial firms annual profits surging has boosted the Shanghai Composite. A surge in profits a year on from the pandemic beginnings is to be expected as we’re starting from a very low base, so continued expansion will be the real market mover.
The rising dollar can be attributed to the pandemic uncertainties pushing traders to the safe haven of the global currency, you also have the rising yields, which themselves would be a carry trade for the likes of yen and euro with their yields a lot lower. The reflation trade is also bullish the US dollar as commodities are priced in the USD, so a country needs the greenbacks if they want to purchase their oil etc. A shortage in the Eurodollar market and the US dollar and bonds could rise. Keeping an eye on the Eurodollar yield curves would be the signal that a US dollar shortage is becoming a problem. There is also a massive stimulus and generally low-interest rates with a lot of unemployed people in America, so how long this bear market rally can continue will be interesting, and currently, that is a trader’s problem. There are too many reasons for and against, so there is no clear directional trade unless of course you hold your nose and stay short the US dollar and just take the pain as it rises above the 200 ema.
An easier trade then is the Australian dollar versus the Japanese yen. The relationship of this pair and copper this last year has been one of tied at the hip. If copper goes up the AUDJPY goes up, and the volatility is pretty much matched, whereas if you go the AUDUSD route, you have the US dollar currently weighing down on the Aussie moves.
The AUDJPY and the copper charts were even able to rise at the start of the US dollar uptick from February and only as the US dollar approached the daily 200 ema did the copper and AUDJPY charts signal their own corrective move. This with the steepening US yield curves and coronavirus worries are the probable catalysts to a weakening copper price but looking at the daily chart we can define a distinctive corrective pattern within a strong bull move, so a move and close higher out of this triangle and we could be pushing the highs again very quickly. Which would then lead me to look for buying opportunities in the AUDJPY again.
The daily 50 ema acted as support for the first time it was tested this year and the rapid rise away from this support shows good bullish momentum.
The ActivTrader sentiment indicator shows that 79% of retail traders feel the bull trade is coming to an end as they try and get short. Therefore a contrarian trade is to go against these traders and stick with the trend.
Where would I be wrong?
The price action for AUDJPY has been above the daily Ichimoku cloud since December 2020 and indicates where support can be expected to be found. We are very far away from the daily 200 ema so the worst-case scenario for traders looking for a continuation is that we grind sideways until the 200 ema comes up to meet price action, but the main idea is something similar to what happened in 2012-2013 where the blow-off top was the signal for a reversal. Whichever way it happens the Ichimoku cloud will give us a fair warning if the trend is changing in the coming weeks.