Thursday 04 October 2018 by Guest Contributor Currency

AUD / Japanese Yen

yen

The absolute bad boy of risk flows is the AUD/JPY and leaves many a trader quaking in their shoes.  

The recent emerging markets (EM) respite coupled with talk of China capping 7.0 on USD/CNY has inadvertently helped lift this pair. But that’s a little desk talk added from all my years of experience trading spot.

AUD still remains a proxy for China and therefore the never-ending tariffs. When 25% became 10% the overcrowded short EM trade squeezed and it squeezed hard. Nothing has really changed for me on the Australian fundamental side so my view is still intact. Just to recap I’m concerned at housing of course - especially as banks are under pressure to tighten lending standards. Iron ore and general commodities could get hit if China demand falters – just a tiny bit.

Let’s also not forget the USD shortage is not going away. The final straw may come when the likely change in government rears up and breaks the proverbial camel next May. 

The Japanese side has not added much to my view – other than the stealth taper that never happened and the upper bound on the 10 year at 0.2 having markets somewhat disappointed.

Technically I need to tell you something very important and exceedingly rare.

The 84.30/50 is a marine of a level - see Figure 1. A fortress if you will. Why’s that?

It is both 100 weekly moving average AND 200 monthly moving average.

Expect sellers (me included) but like with anything, anything can happen.

AUD/JPY Daily

Source: Bloomberg
Red lines = Peak, average and trough
Figure 1

AUD/JPY weekly


Source: Bloomberg
Figure 2

AUD/JPY Monthly


Source: Bloomberg
Figure 3

About Patrick Reid

Patrick Reid co founded Adamis Principle to educate and mentor FX traders at all levels. He and co founder, Adam Gazzoli have both previously worked as spot traders with 30 years’ experience in hedge funds and banks.

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