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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:

Major Forex Pairs Price Performance from MarketMilk
Major Forex Pairs Price Performance from MarketMilk

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

AUD/JPY 1-hour Forex Chart
AUD/JPY 1-hour Forex Chart

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.

Sellers might be ready to hop in as the 100 SMA already crossed below the 200 SMA to give the go signal to take AUD/JPY back to the swing low or lower.

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.