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The Aussie is on fire for the session, riding the positive global risk sentiment wave higher to retest or break 2020 highs in a few AUD pairs, including AUD/JPY.

Will the upcoming Australian and Japanese economic updates keep the rally going in AUD/JPY?

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on a textbook break-and-retest on GBP/AUD, so be sure to check that out to see if there is still a potential play!

Intermarket Snapshot

Equity Markets Bond Yields Commodities & Crypto
DAX: 13022.81 +0.80%
FTSE: 6260.50 -0.47%
S&P 500: 3235.93 +0.35%
DJIA: 26623.69 -0.17%
US 10-YR: 0.609% -0.019
Bund 10-YR: -0.462% -0.01
UK 10-YR: 0.146% -0.018
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Oil: 40.39 -0.49
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Fresh Market Headlines & Economic Data:

Don’t expect new coronavirus relief bill until August, top House Republican says

Biden Proposes $775 Billion Child and Elder Care Plan Funded by Real Estate Taxes

The Chicago Fed National Activity Index (CFNAI) was +4.11 in June, up from +3.50 in May.

The Conference Board Leading Economic Index for China increased 0.8% in June 2020 to 152.5

New Canadian house prices edged up 0.1% at the national level for the second consecutive month in June.

Canadian Retail sales were up 18.7% in May to $41.8B.

U.K. public sector net borrowing (ex PSNB) in June 2020 is estimated to have been £35.5B, roughly 5 times more than in June 2019

Potential’ Russian interference in Brexit must be investigated, PM told by intelligence committee

Brent Crude Rises to Four-Month High on Economic Recovery Hopes

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

API Crude Oil stock change at 8:30 pm GMT
Australia Leading Index at 12:30 am GMT (July 22)
Japan Flash Manufacturing & Services PMI at 12:30 am GMT (July 22)
Australia Leading Index at 12:30 am GMT (July 22)
Australia Retail Sales at 1:30 am GMT (July 22)

What to Watch: AUD/JPY

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

It’s been a strong session for Aussie bulls, starting with a rally during the Asia session as vaccine hopes boost Asian risk sentiment once again. We also got the latest RBA meeting minutes during the Asia session, and with no hints of further easing likely contributing to AUD strength.

Looking forward, we’ve got more potential catalysts from Australia, most notably retail sales, with expectations of a further rebound in the June data.

We’ve also got business sentiment data coming out from Japan, and while not usually a strong influence on the yen, it could add some volatility to AUD/JPY price action.

For the bulls, the current environment is in your favor, but after such a strong move in today’s session and major potential resistance ahead around 76.50 (2020 highs), the risk-to-reward isn’t very tempting from current levels.

If the market pulls back to the broken resistance area / rising ‘lows’ pattern on the chart above, look out for bullish reversal patterns if the environment still favors risk-taking and we see positive data from Australia.

For the bears, resistance and reversal patterns between the 2020 highs (around 76.50 – 76.70) may be the best opportunity to short with a good potential return-on-risk.

If we see negative Aussie data and broad risk sentiment shifts back to negative, it’s likely we’ll see a swift pullback to the downside on profit-taking and maybe fresh short positions.

With a daily ATR of around 70 pips, the broken resistance area is about a couple of sessions away, but definitely achievable if risk sentiment turns very sour.