I’m keeping it simple with a short-term range play this week! On AUD/JPY’s 1-hour time frame I’m seeing support at the 78.50 minor psychological level and resistance at the 80.50 mark. Price just bounced off the resistance and appears ready to test support once more.
I’m looking at a potential long trade around the range support but I’ll be watching how price reacts to that level first. I’ll set my stop below the 78.00 handle and I’ll be aiming for the top of the range at 80.50.
I’m bullish on the Aussie because most of its recent economic reports have been surpassing expectations. Earlier this week, the currency got a boost from a 3.0% jump in building approvals when analysts had been expecting to see a 3.1% drop. Soon after, the Q1 GDP release posted an impressive 1.1% growth figure versus expectations of a 0.6% expansion while the previous quarter’s reading was upgraded from 0.6% to 0.7%. Just a few minutes ago, the trade balance showed a smaller deficit of 1.58 billion AUD spurred by a 1% gain in exports.
To top it off, I’m positive that risk appetite could return sooner or later, especially since China’s recent PMI readings haven’t been all that bad. Apart from restoring demand for the higher-yielding Aussie, this could also could lend more support for Australia’s exports, which have actually been responsible for majority of the economy’s GDP gains in the first quarter.
As for the yen, I’m thinking that Abe’s announcement to delay the sales tax hike is giving the Japanese currency some support for now, as the economy can count on a few more years of strong consumer spending and price levels. However, this decision could make it more challenging for the government to achieve its fiscal targets, putting Japan at risk for a credit rating downgrade.
Also, even though Finance Minister Aso has agreed with the rest of the G7 leaders to avoid competitive FX devaluation, he might be ready with a few jawboning remarks once the yen stages another strong rally. After all, he did mention that excessive currency volatility is undesirable and that they’re ready to step in if sudden one-sided moves take place.
Here’s my plan:
Long AUD/JPY around 78.50, stop loss at 77.25, profit target at 80.50. I’ll be risking 0.5% of my account on this trade and going for a potential 1.6-to-1 R:R.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setup!