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With the Reserve Bank of Australia cutting interest rates in Australia and manufacturing sentiment disappointing all over the globe, this simple consolidation breakout in AUD/JPY shot up to the top of our watchlist for a potential short-term setup.

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Fresh Market Headlines & Economic Data:

Upcoming Potential Catalysts on the Forex Calendar:

  • German Bundesbank’s Weidmann speaks in Vienna at 6:30 pm GMT
  • Japan Consumer confidence at 6:00 am GMT (Oct. 2)
  • Swiss CPI at 7:30 am GMT (Oct. 2)
  • U.K. Construction PMI at 9:30 am GMT (Oct. 2)
  • U.S. ADP Non-farm employment at 1:15 am GMT (Oct. 2)

What to Watch: AUD/JPY

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

With a very light economic calendar ahead, it’s likely today’s driving themes may play out for the rest of the U.S. session and into the Wednesday session. That means that the RBA monetary policy decision earlier today and the broad risk-off sentiment on today’s round of weak manufacturing survey data could be the main drivers for now.

Given these influences, we think AUD/JPY will continue to be a mover, and after the pair broke lower out of a consolidation range (72.65 -73.20) over the latter half of September, the opportunity could be there for the bears if sentiment holds and we don’t see any positive geopolitical surprises (i.e., a positive U.S.-China trade war update and/or U.S. political development).

So, it’s probably a good idea to be in the AUD/JPY bear camp, but after a strong move lower of over one daily ATR (around 60 pips) from the day open (72.95), it’s possible we could see a bounce on profit taking going into the end of the Tuesday trading session.  If you’re looking at this pair to trade short-term, you have to decide whether or not you want to be aggressive with your entry (i.e., you think momentum lower will continue from current trading levels) or conservative (i.e., wait for the bounce to the broken consolidation area).  If you’re somewhere in between, scaling in nibbler positions from current levels up to the consolidation area is also something to consider.

For the bulls, it’s a super tough argument to make for a long position with expectations of more RBA rate cuts, but if there is an incredibly positive development in the U.S.-China trade story and a break above 73.23, then it’s something to consider. Unfortunately, that’s an extremely low probability situation for the next session or two.