AUDJPY Reversal Risks

The decline from YTD highs in AUDJPY has seen price moving lower within a well defined bearish channel. However, over recent decline we have seen bullish divergence building in momentum indicators. Additionally, the current phase of price action looks to be forming an inverse head and shoulders, suggesting the risk of a topside break of the channel and a reversal higher. With this in mind I will be monitoring a breach of the 82 level looking to target the 83.94 level as the initial target for the move.

The recent rally in the NIKKEI has sapped demand for JPY and with the move likely to continue in the near term, there is scope for JPY to weaken further. Furthermore, given the hawkish RBA expectations, AUD remains vulnerable to topside moves on any data beats and positive COVID news.

Key Data to Watch

The big focus for this pair will be the BOJ meeting next week. Given the political uncertainty ahead of the elections and the ongoing risks around COVID, the BOJ is likely to stick to a cautious message, reaffirming its commitment to supporting the economy, which should keep JPY pressured in the near term.