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  • AUD/JPY is currently trading at 81.55 having made a high of 81.92 and a low of 81.32 as the yen weakens across the board and the DXY tops out at the key 95.70.  
  • AUD/JPY is commonly known as the FX space’s risk barometer that will strengthen in times of improved risk appetite and vice versa.

Markets in the US have been positive which has helped in the case for the bulls but the main catalyst was the break of the 114 handle in USD/JPY and broad-based dollar strength yet again – despite a collapse in the Aussie that dropped to the 76.4% fibo target.  

Risk Fundamentals

There is a fair bit that goes into the fundamentals of the cross currently, from trade wars between the US and China are unlikely to find a resolve at any time in the near future – (The IMF are indeed concerned about the impact of these ongoing trade wars. It may even revise down its forecast for world growth when it updates its World Economic Outlook on October 9th)

Also, USMCA risk also still factors that the market is still not completely factoring in for it may not even get through Congress this year let alone next, depending on the midterm elections results on 6th November, which in itself is a risk for markets that is lurking just around the corner).  

Add European politics such as Brexit, Greece and Italy, it is clear that uncertainty is here to stay and that should keep the yen underpinned and a fade on rallies might be the long-term way to go, despite the divergence between central banks that plays in favour of EUR/JPY and USD/JPY. AUD/JPY is unlikely to catch such a bid considering the RBA – that despite managed to give off a modestly upbeat tone this week, it still indicated that it is in no rush to hike rates and is on the air of caution around China and world growth, in general, that will negatively impact its own economy. Add in China’s already slowing growth, the AUD probably still has lower to go within this five-year downtrend that started from the highs of 1.0500’s made back in March 2013.  

AUD/JPY (USD/JPY and AUD/USD) levels

USD/JPY has rallied to a high of 114.31 which is a 50% fibo measured by the fibo expansion tool from the 112.56 26th Sep low to the high of 30th Sep high at 114.06. On a continuation, bulls can target the 2017 high at 114.74, where analysts at Commerzbank suspect that it may fail. However, there could be room to gravitate a little further towards knock out options with upside strikes that will be located at 115 the figure before a major correction might take place.

Indeed, the risk rally was capped by the descending tend line, and the price is making double top hourly highs. However,  AUD/JPY has some room further to go on the upside if USD/JPY pops to the 115 handle, especially should AUD/USD now correct in a mean reversion of the recent steep decline from 0.7315 25th Sep highs.   A 50% retracement would take the pair back to 0.72 handle. However, given the distance from the aforementioned highs that the pair has travelled, a correction on profit-taking would likely only reach as far as somewhere between 0.7173/00 (23.6% & 38.2% fib of 0.7129/0.7315). The effect on AUD/JPY leaves the cross destined to a range between 82.50 and 81.04. 81.82 is the pivot ahead of 82.27 R1. S1 is located at 81.17 while the cross is supported by the confluence of the 100-4hr SMA/26th Sep double bottom lows.