Daily London Session Watchlist: AUD/JPY

I’ve got my eyes on this potential risk-off play while markets remain wary of political protests leading up to Biden’s inauguration.

Think this break-and-retest setup on AUD/JPY would work out?

Before we look at the chart, let’s have a quick review of price action and catalysts over the past trading sessions:

• U.S. Capitol lockdown lifted ahead of inauguration
• Trump to lift travel restrictions on Brazil, Europe?
• Biden to block Trump’s easing of travel restrictions
• Rumors of North Korea planning a missile attack during inauguration
• New Zealand NZIER business confidence index improved from -40 to -6
• China’s NDRC says there will be no shift in monetary policy this year
• Incoming Treasury head Yellen says U.S. must “act big” on relief package

Upcoming Potential Catalysts on the Economic Calendar:

• 8:00 am GMT: German final CPI
• 8:30 am GMT: Swiss PPI
• 11:00 am GMT: German and euro zone ZEW economic sentiment readings
• Former Fed head Yellen’s testimony coming up

What to Watch: AUD/JPY

After taking this pair below the neckline of its double top pattern, traders are going for a retest of the broken support.

This happens to line up with the 50% Fibonacci retracement level, which is currently keeping gains in check. A larger correction could last until the 61.8% level that lines up with the 200 SMA dynamic inflection point.

There’s not much in the way of top-tier reports, though, so market watchers might have to take cues from overall sentiment. As it is, traders seem wary of another potential political ruckus during this week’s U.S. Presidential inauguration.

In that case, demand for safe-havens like the Japanese yen could stay in play while higher-yielders such as the Aussie could retreat.

If you’re trading this pair, be sure to keep close tabs on risk flows and dollar movements during Yellen’s testimony since forex-related remarks might spur extra volatility.