On May 17th we looked at a long-standing trend line on the AUDJPY that if broken could trigger a much larger selloff. If you remember, that was the day risk assets came under immense pressure and the AUDJPY sold off 160 pips in a single session.
Since that time things have been relatively quiet and even bullish on an intraday basis. That is until today.
The risk-sensitive pair is once again testing trend line support from the 2016 low, and the area of interest now appears to be 82.60. But remember that only a daily close below this area constitutes a breakdown. Any intraday move below it is meaningless as far as I’m concerned.
Before we discuss recent price action and its implications, I want to clarify something from last week’s post. I received a few emails questioning my comment that the AUDJPY could be heading as low as the 56.00 handle over the longer term.
To be clear, I was referring to the multi-year cycle the pair has been stuck in since the year 2000. I am by no means saying the AUDJPY is going to drop 2,700 pips by next month.
It would likely take more than a year for such a move to play out. There are also no guarantees, so these comments are just food for thought and nothing more.
Keep in mind that the most volatile selloffs also tend to produce relief rallies that are just as volatile if not more so. Look no further than the 800 pip single week rally in September of 2008.
Now, back to the more immediate price action at hand. Since the April 20th bounce from support, the pair has carved two lower highs into trend line support. This behavior suggests a breakdown is imminent.
I wrote about this type of “heavy” price action in this post.
A daily close below 82.60 would expose the current 2017 low at 81.50 with a break there exposing 80.30 followed by 78.45. Alternatively, a move above this week’s high of 83.87 would challenge the bearish outlook.
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