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Risk sentiment took a turn today, moving negative as economic data disappoints and coronavirus case numbers continue to rise globally.

AUD/JPY took a turn lower from a tight consolidation pattern. Is this the start of a fresh leg lower?

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on NZD/USD on negative headlines during the Asia session, so be sure to check that out to see if there is still a potential play!

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Fresh Market Headlines & Economic Data:

Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:

  • Fed Bostic speech at 5:00 pm GMT
  • Fed Beige Book at 6:00 pm GMT
  • U.S. Net Long-term Tic flows at 8:00 pm GMT
  • Japan Tankan index at 11:00 pm GMT
  • Australia Consumer inflation expectations at 1:00 am GMT (Apr. 16)
  • Australia Employment update at 1:30 am GMT (Apr. 16)
  • China House price index at 1:30 am GMT (Apr. 16)

What to Watch: AUD/JPY

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

Over the past few sessions AUD/JPY settled into a tight range between roughly 68.50 – 69.00 (well within the daily ATR of around 146 pips), but the pair broke lower on today during the Asia session.

The downside break was likely on a combo of weak Aussie updates (Australia sells A$13B of bonds in biggest sale on recordAustralian consumer sentiment drops most in 47-year history) and global risk sentiment ticking lower on warnings that the upcoming recession will be the worst since 1930.

The pair seems to have found a short term bottom at the next area of interest around 67.75 that served as both resistance and support about a week ago, so the question now is where to next in the short-term?

Well we have a major catalyst ahead in the form of Australian employment, which is likely to be very disappointing (There could be a net job loss of about 30,000 to 40,000; Unemployment rate might jump from 5.1% to 5.5%).  This could be priced in already so don’t think it’s a slam dunk to short the Aussie if the numbers come out bad, so it’s likely a good idea to wait for the news and market reaction before executing a plan, whether it’s long or short.

For the bears, if we get bearish data and the pair is able to show bearish reversal patterns below the consolidation area (68.50 – 69.00), then consider a short position.

For the more prudent, waiting for a retest of the consolidation area is a more conservative strategy that improves the potential return-on-risk if you think we’ll see a “buy-the-rumor, sell-the-news” scenario play out.

For the bulls, since no one is expecting it, an upside surprise in Aussie employment data would likely push traders to buy up the Aussie in the short term. Longing on the news is fine entry strategy but keep your position size small and stops wide due to the likely big spike in volatility.

For the more prudent, wait for an upside break of the consolidation area before considering a long position if this scenario plays out. The potential return-on-risk is much lower with this strategy for a short-term trade, but if you’re looking at this for a longer-term position, it’s a great setup if you think risk sentiment will continue to improve over the next few weeks.