With the yen getting its mojo back and the Aussie bears shaking off the positive jobs data, I’m looking at this textbook technical setup on AUD/JPY for a potential short play.
AUD/JPY Broken Wedge Retest
Fundamentally, Japan has been on the upswing in terms of its economic performance, recently marking another quarter of growth with the release of its preliminary first quarter GDP reading of 0.5%, on top of improving inflation and business sentiment data. Australia on the other hand is still fighting low inflation conditions and weak consumer sentiment, which seems to be outweighing another round of positive jobs data that was quickly brushed off by the market today.
So, I’m short-term biased in favor of the yen and by the looks of recent price action, the market seems to agree that the yen has regained its mojo. After a period of slow consolidation to the upside, yen bulls took back control in the last couple of sessions, likely with big help from the most recent story involving memos on conversations between U.S. President Trump and Former FBI Director James Comey, as well as the developing geopolitical stories surrounding Japan & North Korea.
At the moment though, it looks like yen rally has stalled out at the recent swing low around the 82.00 handle (and likely oversold), so I’m throwing this idea onto the watchlist for a potential trade in the next week or so if the market bounces back up to the broken wedege pattern and finds resistance there.
And it’s possible the market will get further volatility through the end of May with the forex calendar providing a steady stream of economic data from both Australia and Japan. Most notable would be upcoming business survey data from both countries, as well as inflation reads from Japan.
So, be on the lookout for a new trade idea if we do see a retest, and until then as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.