Most strikingly, the AUD/JPY currency pair is reflecting incredible resiliency. It is clinging to those gains just below a new three-week high at around 94.10 and in European Monday trading hours. With this positive development starting the week, the outlook is generally hopeful. The duo will be looking to build upon their two-day winning streak. The long-running U.S.-China trade dispute makes all this even more problematic. These negotiations are extremely influential in shaping the market landscape.
The Australian dollar (AUD) is pumping at the moment. Technical and macroeconomic drivers serve to underscore the recent performance of AUD/JPY. The 14-day Relative Strength Index (RSI) has surged back above 60.00. Traders are now eagerly watching for a breakout of this congestion zone that would signal a return of bullish momentum. A more persistent break above this level will certainly strengthen the currency pair’s bullish momentum.
Technical Indicators and Market Sentiment
The technical landscape surrounding AUD/JPY appears encouraging. Now trading well above the 20-day Exponential Moving Average (EMA), the pair shows signs of a bullish near-term trend. With the EMA acting as strong support, the probability of further advances is bolstered. If AUD/JPY can break above the May 15 high of 94.37, the cross could potentially retrace all the way back to the March 18 high of 95.70. This bullish action may lay the groundwork for a robust advance to the February 19 96.77 high.
Unquestionably, market sentiment will continue to be the most important factor in deciding AUD/JPY’s direction moving forward. The new optimism about Sino-US trade talks has boosted a lot the overall sentiment and downcast dollar yield expectation. Given Australia’s substantial reliance on exports to China, any positive outcomes from these discussions could bolster the Australian dollar’s value against the Japanese yen.
The Role of Economic Conditions
According to this view, economic conditions in both countries are crucial in explaining AUD/JPY’s rise. Additionally, the Japanese yen often acts as a preferred safe-haven currency during periods of increased market volatility. This protective sheltering role can affect its performance versus riskier currencies such as the Aussie dollar. Recent turbulent times have led to increased demand for the yen, which could impact AUD/JPY negatively if the sentiment swings towards risk aversion.
The yen is receiving some defence from Japan’s upwardly revised Q1 GDP figure. This better economic outlook is causing the yen to appreciate against other currencies. Trader sentiment is largely affected by the Bank of Japan’s monetary policy. Further, the spread between Japanese and US bond yields plays a large role in currency valuations as well.
On the one hand, Australia’s economic reliance on China continues to be a double-edged sword. Strong exports resulting from that competitive advantage would usually raise the AUD, and any negative effects of trade tension could outweigh those positives. Misguided US-China trade talks go a long way to determining the short term direction for AUD/JPY. Futures traders are eager to see what happens next.
Potential Scenarios Ahead
Going forward, market participants need to be prepared for at least three possible future paths for AUD/JPY. If the breakout is bullish, further gains may follow, particularly if important resistance levels are broken through. A very different scenario might play out if prices breach the May 23 low at 91.65. Reversal of this move would likely lead to further AUD/JPY weakness, possibly retesting the April 29 low of 90.60 and threatening a test of the psychological level of 90.00.
With this landscape in mind, traders should stay alert to evolving economic indicators and geopolitical events that may shift market sentiment. It is this dynamic between risk appetite and safe-haven demand that will determine AUD/JPY’s future direction.