Still positively correlated with the stock indices, particularly the S&P/ASX 200, the AUD/JPY currency pair strongly rebounded between February and June this year. It posted a recent high on June 11 at 80.43 (point C on the chart). From the low of 55.51 posted in early February (point E), it’s a rise of 45% in 4 months and a half.
The trends are therefore really easy to identify on this chart. First, there was a sharp bearish trend that drove the price from 104.50 to 55 in the second half of 2008 (between points A and B), when the financial crisis was spreading globally. As you know, this plunge particularly impacted the commodities and stock markets, but also the FX carry trades. The AUD/JPY was one of the most popular carry trades: risk aversion and deleveraging hit strongly the value of the “Aussie” against the Yen.
The bullish trend that followed (between points E and C) retraced half of the previous plunge. Indeed, the price action failed on the 50% Fibonacci retracement level, which corresponds to the level of 80. This level acts as a resistance line and is likely to hold firmly. The price peaked on this level three weeks ago, and immediately corrected. This was due to profit-taking and short-selling around this key Fibonacci ratio. As a result, the price fell back to the previous Fibonacci level (the 38.2% ratio, point D) where it found some support. Then the AUD/JPY has been bouncing back for one week now. A new attempt to break above the resistance line is probable.
Look at the Bollinger bands: the price action found bounced on the lower band. A move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets. The upper band currently corresponds to the resistance line at 80. This is the objective for the current price action (the AUD/JPY is currently trading around 77.70).
But as mentioned above, the resistance is likely to hold. The indicators show that a bearish divergence has appeared. The MACD did not confirm the new high of the price action in June, and has already started curving downward. In this scenario, the AUD/JPY should quickly jump to 80 and then correcting strongly in the following weeks.
