AUDJPY is back in the hot seat again after failing to uphold the 87.30 level as new support during Tuesday’s session.
This comes after the pair slammed into heavy resistance that is defined by two critical levels. The trend line that extends off of the June 18th high and channel resistance that extends off of the September low intersect at 88.40, a level that has (so far) capped last week’s 360 pip advance.
Tuesday’s move lower took out a level that most would have expected to act as new support given the October 9th rally that closed well above it. That level is 87.30, an area that previously acted as resistance on August 28th and again on September 17th.
The inability of the bulls to support prices in this area is a sign of weakness and one that could lead to a slide toward channel support at 83.50. Of course only time will tell, but gravity appears to once again be having its way with the risk-sensitive AUDJPY.
From here traders can watch for bearish price action in the 87 area. However its important not to chase the market in the event that a retrace never materializes.
Instead, the larger and more lucrative opportunity here (in my opinion) could materialize on a break below channel support near 83.50. This does not mean you have to wait for a break to get short, however just make sure that if you do put on a position, it fits with your overall trading strategy and meets your criteria for a valid setup.
I should note that I am short from 87.23 based on yesterday’s 4 hour close below the 87.30 handle.
Summary: Watch for bearish price action on a retest of the 87 area. If a retest does not materialize, wait for a selling opportunity on a daily close below channel support near 83.50. From there, key support comes in at 82.00, 79.35 and 74.45.