Chart of the day Mean reversion decline remains intact for AUDJPY as RBA looms

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By :  ,  Financial Analyst

Short-term technical outlook on AUD/JPY



Key technical elements

  • Since hitting its year to date of 90.30 printed on 21 September 2017, the AUD/JPY cross pair has declined by around 4% to a low of 86.67 seen on 31 Oct 2017. The recent weakness see in the AUD/JPY has been reinforced by a wider expectation in monetary policy divergences between Fed and RBA where the former is deemed to be more hawkish than the latter due to recent weakness seen in key Australian economic data; retail sales and inflation.
  • Despite the aforementioned decline of 4%, the medium-term primary uptrend remains intact for the AUD/JPY as it continues to trade above its medium-term ascending trendline from 24 June 2017. In the longer-term (multi-months to years), it is still involving within a major “Symmetrical Triangle” range configuration in place since October 2008 low (see daily chart).
  • The daily RSI oscillator has flashed a prior bearish divergence signal at its overbought region and shows room further potential downside before it reaches an extreme oversold level of 22%. These observations suggest that the current decline (mean reversion) from 21 September 2017 high still has downside momentum to allow it to shape another potential downleg in price action.
  • The key short-term resistance stands at the 88.10/40 zone which is defined by the pull-back resistance of a former ascending trendline from 11 August 2017 low, the upper boundary of a minor descending channel in place since 21 September 2017 high and the 61.8% Fibonacci retracement of the recent decline from 23 October 2017 high to 31 October 2017 low (see 1 hour chart).
  • The key short-term support rests at the 86.00/85.85 zone which is defined by the medium-term swing low areas of 10/28 August 2017, the medium-term ascending trendline from 24 June 2016 low, the lower boundary of the aforementioned short-term ascending channel and a Fibonacci cluster (see daily & 1 hour charts).
  • The short-term hourly Stochastic oscillator continues to hover above the overbought zone as RBA looms and still has some room left before it reaches at extreme overbought level of 95%. This observation suggests a potential residual push up towards its intermediate resistance of 87.85.

Key levels (1 to 3 days)

Intermediate resistance: 87.85

Pivot (key resistance): 88.10/40

Supports: 86.72 & 86.00/85.85

Next resistance: 89.08 & 90.23

Conclusion

The current on-going mean reversion decline of AUD/JPY remains intact but the pair may see a further potential push up in place since yesterday (06 Nov) European session low towards the 87.85 intermediate resistance with a maximum limit set at the short-term pivotal resistance of 88.10/40 before another potential short-term bearish impulsive downleg materialises to retest the 86.72 intermediate support (swing low area of 31 Oct 2017 & 04/09 Sept 2017 before targeting the key medium-term support at 86.00/85.85.

On the other hand, a clearance above 88.40 shall invalidate the bearish scenario to see a continuation of the corrective push up towards the 89.08 medium-term resistance.

Charts are from eSignal

Disclaimer

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. City Index recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. GAIN Capital Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.



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