AUD/JPY nears 17-month high, ASX 200 looks set to bounce: Asian Open

Market Summary:

• FOMC minutes weren’t expected to set the world alight given Fed officials and subsequent CPI data have kept the doves at bay, so it comes as no surprise to see the minutes revealed that most members were concerned about moving too quickly to cut interest rates
• NZD/USD was again the strongest FX major, rising for a sixth day on speculation that the RBNA may not be at the peak of their tightening cycle after all
• This sent AUD/NZD to a 9-day low, and just pips away from tagging a 9-month low
• Wall Street indices fell for a third day and finishing the session near their daily lows, in anticipation of Nvidia earnings that were released after the NY close
• Nvidia (NVDA) Q4 earnings beat estimates by 7%, sending the share price over 15% after hours and lifting Wall Street index futures such as the Nasdaq 100 and S&P 500
• The Biden administration has halted American exports to Huawei’s most advanced factory in response to the company producing a sophisticated Chip for the Huawei Mate 60 phone
• Australia’s wage price index rose to a 15-year high of 4.2% y/y, and surpassed the official rate of inflation for the first time since Q1 2021
• Yet the temporary factors that shot Q3 inflation up to 1.3% receded, with Q4 CPI softening to 0.9% q/q
• It’s not enough to move the needle in either direction for the RBA, but it’s also unlikely to prompt them to remove their tightening bias (even though few expect further hikes)

Events in focus (AEDT):

• 09:00 – Australian PMIs (manufacturing, services and composite - Judo Bank)
• 10:50 – Japan’s foreign bond investment
• 19:30 – German - (manufacturing, services and composite - S&P Global)
• 20:00 – Euro Area PMIs (manufacturing, services and composite - S&P Global)
• 20:30 – UK PMIs (manufacturing, services and composite - S&P Global)
• 21:00 – Euro Area inflation
• 11:30 – ECB monetary policy meeting accounts
• 00:30 – US jobless claims
• 01:45 – US PMIs (manufacturing, services and composite - S&P Global)

ASX 200 technical analysis:

Weak sentiment for indices heading into Nvidia earnings saw the ASX 200 cash index fall for a second day, yet rebound back above 7600 by the close after a false intraday break beneath it. The fact the Nvidia rallied over 15% from its after-hours low to high suggests there could be some bullish follow-through for the ASX 200 today, as Wall Street index futures tracked the stock higher (to a much lesser degree).

The 1-hour chart shows that Wednesday’s low found support above a 61.8% Fibonacci ratio, a swing low and a volume node (taken from futures pricing). A bullish outside candle also formed at the last hour of trade, which I suspect could mark the low. And even if price action is messy at the open and we see an initial drive beneath this 1-hour low, I would still be looking for long opportunities if prices then regained ground after the open.

7600 could be an initial target for bulls, a break above which brings 7620 into focus, just beneath the 200-bar EMA and resistance zone.

AUD/JPY technical analysis:

As noted in previous analysis, AUD/JPY has respected a 40-47 day cycle since May and the reasons as to why remain unknown (assuming there are any). Should the cycle hold true, it estimates the next cycle trough to be near the end of March of beginning of April.

The BOJ remain ultra-dovish and as of yet remain quiet on defending the depreciation of the yen. The RBA are not expected to hike, yet the Fed are pushing back on cuts which keeps pressure on other central banks such as the RBA to retain a hawkish bias. And Wall Street (another proxy for risk alongside AUD/JPY) are just off of their record highs. So unless this picture changes, perhaps this rally has more to give.

AUD/JPY has tapped the 2023 high and is just pips away from testing the 2022 high. It’s rally into these highs has been in a relatively straight line, and it made light work of breaking above 98 (a level it had struggled to penetrate since December). On this basis, the bias is for an eventual break above these highs.

However, I doubt it will simply break though these key highs without a catalyst, as such key levels rarely break on their first attempt without good cause. So perhaps we’ll see a pullback towards 98 before its next leg higher. A break beneath 98 assumes something has gone wrong and that we’re in for a deeper pullback (perhaps appetite for risk sours, the BOJ get verbal on their currency or the RBA turn surprisingly dovish). But until then, the bias is to seek bullish setups at lower levels, or wait for a break above these highs to assume bullish continuation.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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