Selling AUDJPY – Forex Trading Tips

Today we are looking at selling AUDJPY from the area between the 95 handle and 95.20. Yesterday’s low comes in at 95.17 which aligns with the 50% fibonacci retracement of the recent dip and also matches the level 1 support pivot line.

Current Sentiment:

The US session last night had few highlights, however JOLTS job openings increased to the highest level in more that 14 years; there was still no clear direction in major currencies.

Two central bank Governors have moved markets during Asian trade this morning; RBA Governor Stephens said that the AUD has further to weaken – this comment is not new, as it’s part of his usual rhetoric – and that the bank is open to further easing. This information about about further easing is fresh and saw the Aussie drop 45 pips in the immediate aftermath. We were currently viewing AUD as a neutral currency with a slight bearish bias, but this comment from Stephens slides us closer towards bearish on the bias spectrum. The Aussie has since regained all of its losses to trade above pre-announcement levels, finding resistance at 77.

BOJ Governor Kuroda said that JPY may not weaken any further on a real effective exchange rate basis and that QQE will not continue indefinitely (an effective exchange rate is the price of domestic currency against a basket of foreign currencies, while a real rate in economics means a rate that is adjusted for inflation). These comments saw yen strengthen, with dollar-yen dropping 185 pips from the session highs. The pair is now down over 3 yen since Friday’s post NFP high.

Fundamentals:

The USD remains the strongest currency in the longer term. The recent NFP reading has reaffirmed USD strength amid speculation of a rate hike by September. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against most counterparts and therefore may be susceptible to pullacks – such pullbacks will likely provide buying opportunities.

The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which has given the currency some positive sentiment recently. If Greece fails to make any of their imminent repayments, the euro will be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.

GBP is looking at a rate hike in the next 12 months. There is no clear sentiment on pound at present. We await some tier one data to help guide trading decisions on the currency.

AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD, however the recent RBA statement did not include any specific mention of further cuts and stated that inflation is expected to remain within target. Last week saw mixed data from Australia, with both better and worse data coming in. Overall the bias for AUD is on the bearish side of neutral, until we see more data. Stephens comments should increase bearish sentiment on AUD.

NZD has a chance of decreasing interest rates on Thursday in Asia this week. The Overnight Index Swap market is pricing a 43% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market. Inflation is very low in New Zealand and dairy prices have continued in a downward trend. There are banks on both sides of the rate cut call, which means it will likely be a close decision.

CAD remains on the weaker side of neutral. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing, and Kuroda’s recent comments have spurred strength in the yen.

CHF is fundamentally a weaker currency given the SNB’s negative interest rates. It is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is approximately 75%.

Technicals:

We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:

Today we have Manufacturing Production from UK and a speech from Carney at the Mansion House Dinner. Either of these events may provide some new direction for the stagnant pound.

The main event later on is the RBNZ rate decision where the market is divided on whether they will cut.