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!
|Equity Markets||Bond Yields||Commodities & Crypto|
|DAX: 11170.07 +0.86%
FTSE: 6044.23 +0.70%
S&P 500: 2974.29 +1.76%
DJIA: 24595.56 +1.61%
|US 10-yr 0.714% +0.003
Bund 10-YR -0.462% -0.001
UK 10-YR: 0.235% -0.01
JPN 10-YR: 0.001 +0.004
|Oil: 33.37 +4.41%
Gold: 1750.20 +0.26%
Bitcoin: 9775.04 +0.40%
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Fresh Market Headlines & Economic Data:
- If U.S. can’t resolve public-health issues, there’s a limit on what the Fed can do to help – Fed Rosengren
- Dallas Fed President Robert Kaplan says more fiscal help will be needed including aid to states
- U.S. borrowers in hardship jumped in April: study
- Canada records negative annual inflation rate for first time since 2009
- Canadian wholesale sales fell 2.2% to $63.9 billion in March; In volume terms, wholesale sales dropped 2.8%
- Euro zone April inflation revised down to nearly four-year low
- March 2020 the current account of the euro area recorded a surplus of €27B, compared with a surplus of €38B in February 2020
- EU must focus on health & jobs now, fiscal matters later: Commission
- UK inflation slumps to lowest since 2016 as coronavirus hits
- UK house prices perked up before coronavirus hit
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 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 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.