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Broad risk sentiment is on the upswing towards positive for the session, and with potential catalysts coming from both Australia and Japan, this short-term uptrend in AUD/JPY is definitely one to watch.

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/AUD ahead of the latest European PMI updates, so be sure to check that out to see if there is still a potential play!

Equity Markets Bond Yields Commodities & Crypto
DAX: 12739.15 -0.17%
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S&P 500: 3376.59 +0.40%
NASDAQ: 11261.39 +0.84%
US 10-YR: 0.691% +0.014
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Fresh Market Headlines & Economic Data:

Dow is flat as traders watch for stimulus progress, tech shares higher

Oil slips on weak demand outlook and higher OPEC supplies

ISM Manufacturing PMI for September was down 0.6 to 55.4.

Job cuts announced by U.S.-based employers jumped up 2.6% m/m to 118K, up 186% y/y

U.S. Consumer spending rose in August; economy on track for record Q3 growth

U.S. weekly jobless claims total 837,000, vs 850,000 estimate

Canada PMI: Recovery gains momentum amid stronger new order growth

The total value of Canadian building permits rose 1.7% to $8.1B in August

Eurozone manufacturing growth strongest for over two years

UK-EU trade talks conducted in constructive spirit, says UK PM’s spokesman

Euro area unemployment at 8.1%; EU at 7.4%

In August 2020, Industrial producer prices were up by 0.1% m/m in euro area; Up by 0.2% m/m in EU

Continued euro strength could hurt growth, slow inflation: Commission

UK manufacturing recovery continues in September as output and new orders rise again

EU launches legal action against UK for breaching Brexit deal and international law

Upcoming Potential Catalysts on the Economic Calendar

Japan Unemployment rate at 11:30 pm GMT
U.S. Total Vehicle sales at 12:00 am GMT (Oct. 2)
Australia Retail sales at 1:30 am GMT (Oct. 2)
Japan Consumer confidence at 5:00 am GMT (Oct. 2)

What to Watch: AUD/JPY

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

On the one-hour chart above of AUD/JPY, we can see a pretty strong uptrend in AUD/JPY since bottoming out around the 74.00 handle at the end of September.

Broad risk sentiment is leaning positive due to hopes of another round of stimulus from the U.S. and positive business sentiment updates, so it’s likely we’ll see more risk-on vibes as long as U.S. Congress doesn’t disappoint.

If that’s the case, AUD/JPY strength may continue, and if we see better-than-expected data from the upcoming Australian Retail sales data, and even positive economic updates from Japan, then AUD/JPY could make its way to retest the broken minor support area around 76.20 – 76.50.

So for the bulls, riding the current wave higher makes sense, but a short-term position may be the only way to play as resistance may come quick.

For the more conservative, a short-term reversal may be in the cards, given the run up on the session and the bearish divergence signal, so waiting for a pullback before going long makes sense if you’re bullish on the risk environment and upcoming data.

For the bears, that bearish divergence signal on AUD/JPY could draw in technical traders, and if Aussie retail sales data disappoints, or we get disappointing news on stimulus/COVID-19 related news, then this could be a swing reversal point for the pair on the higher timeframes.

If so, swing traders may look for a bigger move than the daily ATR of around 73 pips, likely targeting the previous swing low around the the 74.00 handle.