We’ve got a potential short-term catalyst ahead for the Aussie, and with the markets likely to keep its risk-on lean, we’re checking out this upside resistance break in AUD/JPY for potential short-term pips!
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on the ranging pattern in GBP/AUD, 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:
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U.S. service sector activity slows to six-month low in November: ISM survey
2020 November US Job Cuts Report: 64,797 in November, Up 45% From November 2019
France sees sharpest decline in service sector activity since May
New COVID-19 lockdown restrictions weigh on
German service sector activity in November
Euro area unemployment at 8.4%; EU at 7.6%
Industrial producer prices up by 0.4% in the euro area and by 0.3% in the EU
Volume of retail trade up by 1.5% in both euro area and EU
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What to Watch: AUD/JPY
On the one hour chart above of AUD/JPY, we can see that the pair just broke above a strong resistance area around the 77.00 major psychological level. Will this draw in momentum traders to play the recent move higher? Or is this a reversal in the making?
Well, we’ve got the latest Australia retail sales data ahead to potentially give the Aussie a kick in volatility, and if it does come out better-than-expected, maybe we could see more bulls come to play like we did in the euro after he Euro area released its retail sales data today.
If you’re bullish on AUD/JPY and want to get in ahead of that data, look out for a pullback to the broken resistance area and see if we get bullish reversal patterns around 77.00. That could signal a very short-term bottom, a highly probable scenario if broad risk sentiment continues to stay positive as it has been for the past few weeks.
If you’re bearish on AUD/JPY, it would likely take both disappointing retail sales data from Australia and a negative turn in broad risk sentiment before traders turn bearish on AUD/JPY. The catalysts for a turn in risk sentiment would likely come from negative covid vaccine news or some sort of surprise geopolitical news event (e.g. “no-deal Brexit”, failure of new stimulus in the U.S., etc.). It’s a low probability case at this point, but if it happens, the volatility could be significant.
But if something like that does play out, look to short AUD/JPY at current levels up to the 78.00 handle, which could also draw in technical traders as we see a bearish divergence between price and the stochastic indicator, marked on the chart above.