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AUD/JPY makes it to the top of the watchlist with a top tier economic event coming soon from Australia. Is the downtrend still your friend?

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Fresh Market Headlines & Economic data:

Upcoming Potential Catalysts on the Forex Calendar:

  • Bank of Canada Governor Poloz speaks in Winnipeg at 6:45 pm GMT
  • Australia AIG construction index at 11:30 pm GMT
  • Japan final manufacturing PMI 1:30 am GMT (May 7)
  • Australia retail sales & trade balance at 2:30 am GMT (May 7)
  • Reserve Bank of Australia monetary policy statement at 5:30 am GMT (May 7)

What to Watch: AUD/JPY

AUD/JPY 1-Hour Forex Chart
AUD/JPY 1-Hour Forex Chart

Big pop in volatility to start the new week thanks to a threat by U.S. President Trump to China on raising tariff rates to 25% on Friday. Most asset classes opened up with big gaps, including AUD/JPY above which open almost 100 pips from the Friday close of 78.04, and got as low as 76.80 before bouncing higher throughout the Asia and European trading sessions.

AUD/JPY is likely to see continued volatility throughout the remaining session and the next session with some top tier economic updates coming from Australia, most notably the Reserve Bank of Australia’s latest monetary policy decision. The expectations are pretty cloudy at the moment with conflicting signals on the economy according to the RBA, so it’s quite possible that whatever the outcome of the meeting may be, there’s a high chance of volatility picking up.

If the upcoming volatility takes the market higher after the event, AUD/JPY may want to keep an eye out for a retest of the 78.00 major psychological area. Unless we get some really hawkish rhetoric from the RBA, this area could possibly draw in sellers looking for an opportunity to play the longer-term down trend in the pair at a better price. The stochastic is already signaling potentially overbought conditions, so it’s probably a good idea to look out for reversal short patterns starting from current market levels up to 78.00.

The bullish argument is a bit tougher to make given the current conditions, but if we see President Trump walk back on his tariff threats to China and the RBA sounds hawkish on Australia’s economic outlook or monetary policy, then a long position should be considered, especially if we see a momentum break above the 78.00 area.