AUDJPY Takes The Plunge

It’s been another weird and wonderful week in financial markets. We’ve see all kinds of action plenty of interesting developments with crypto markets crashing, the Dollar soaring and the Fed confirming plans to hike by further .5% increments in coming weeks. In terms of picking the best market action to cover, in the FX space in particular, it seems the big move capturing traders’ attention is the more than 5% plunge in AUDJPY. Indeed, AUDJPY short was one of the key Market Spotlight trades this week. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.

What Caused the Move?

Heavy Risk-Off Moves

The main driver behind the almost 500 pip move south was the massive downturn in risk sentiment this week. Equities and commodities came under huge pressure across the week as the US Dollar soared to fresh multi-year highs. Rising inflation and higher interest rates are causing widespread fears over global recessionary risks as central bankers continuing to warn over the coming, projected downturn.

China Slowdown Concerns

Additionally, AUD has been under greater pressure over the slowdown in China, Australia’s largest trading partner. Recent China data has confirmed the negative impact of ongoing lockdowns there as the country continues to fight a fresh COVID outbreak.

Inflation Impact

US CPI midweek was seen coming in above expectations, keeping the focus firmly on Fed tightening plans. With risk assets sinking, high-beta currencies such as AUD bore the brunt of the move while JPY strengthened across the week on rising safe-haven inflow. Indeed, following the massive selling we’ve seen in JPY recently, the currency was one of the strongest performers this week.

Hawkish Fed Expectations

Into the back end of the week, the pressure stayed on as collapsing crypto markets added to the risk off tone. Fed’s Powell spoke on Thursday confirming the bank’s plans to raise rates by .5% again in June and July citing the bank’s main priority of returning inflation to 2%. Crucially, Powell also seemingly put the prospect of larger .5% hikes on the table, saying that while the Fed isn’t discussing such options yet, it will do whatever necessary.

Technical Views

AUDJPY

Recent price action in AUDJPY proposed a potential head and shoulders pattern which was confirmed on the breakdown below the 90.76 support zone. With both MACD and RSI showing strong bearish divergence into recent highs, the break of this support now opens the way for a much deeper correction. Price is currently stalling at the 87.35 level and remains vulnerable to further downside while beneath 90.76 .