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AUD/JPY has been in a solid uptrend thanks to recent positive global risk sentiment, but we’ve seen a little bit of consolidation over the latest session.

Will the upcoming PMI data from Japan and Australia help the pair resume the uptrend?

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/USD after the Franco-German stimulus proposal, 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 Economic Calendar for U.S. & Asia:

  • BOC Lane speech at 6:00 pm GMT
  • FOMC Meeting Minutes at 6:00 pm GMT
  • Australia Manufacturing & Services PMI at 11:00 pm
  • Japan Trade balance at 11:50 pm GMT
  • Japan Manufacturing & Services PMI at 12:30 am GMT (May 21)
  • RBA Governor Lowe speech at 2:30 am GMT (May 21)

What to Watch: AUD/JPY

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

AUD/JPY has been in full-on rally mode this week as positive global risk sentiment continues to dominate, fueled by lockdown easing and economic recovery hopes. 

But the pair did stall its rally over the last session, ranging somewhere in between the 70.00 – 71.00 area. So, the question now is will the pair breakout higher and resume the uptrend?

Well, a big part of answering that question is the broad global risk environment, which is likely to stay in risk-on mode in the short-term given the geopolitical catalysts mentioned above.

It’s not likely until we see whether or not coronavirus cases spike higher or drop as a result of the re-opening that global risk sentiment will change.

So, the odds are that the uptrend will hold, but the PMI data coming up from Australian and Japan may shift the traders’ bias on the pair. Depending on the numbers, we may see a short-term shift in bias on AUD/JPY.

If you’re a bull on AUD/JPY, a better-than-expected Australian read vs. a negative Japanese PMI read could be the catalysts to break above the current resistance area around the 71.00 handle.

If so, watch out for a break/retest/hold scenario around 71.00 before considering a long position in the pair, which can be played as either a short-term or medium-term position given the current trend.

If the pair makes it’s way back to the support area around 70.15, then bullish support patterns around there should also be considered for a long position as well.

If you’re a bear on the pair, a negative update from Australia and positive update from Japan could take the pair lower, but more likely, it’ll take a shift back to negative global risk sentiment to get traders really bearish on the pair.

If these scenarios play out, shorting at current levels up to 72.00 (within the daily ATR of around 100 pips) makes sense for a swing position to target last week’s lows around 68.50 (a rough 2.5:1 R: R).

Or for the more prudent traders, waiting for a break below 70.00 is the signal that could draw in more sellers, but you give up some potential reward if keeping the stop to one daily ATR