I featured AUDJPY exactly one week ago, shortly after the pair had run into confluent resistance at 88.40. Upon being rejected from this level, the bears had also managed to push the pair below the 87.30 key handle, a level that previously acted as resistance on August 28th and again on September 17th.
However, despite the best effort from sellers, they have been unable to gain any real traction on a push lower. The level responsible for this support is a trend line that extends off of the October 8th low and has now been tested on three separate occasions.
The question then becomes, how much longer can this support level hold out?
As space becomes limited, traders can watch for a break from this pattern in order to initiate an entry. It should be noted that only a break of support would offer a favorable opportunity. This is due to the confluent resistance area that resides at 88.40. See this post for details.
A 4 hour close below trend line support would expose the 85 handle, a level that recently capped advances on September 25th and October 1st. A break there would open the door for a move to channel support that extends off of the September low.
While this is clearly a range trade, be sure to keep the bigger picture in mind. The price action since the selloff that commenced in mid August may have carved out a continuation pattern of sorts, which could ultimately trigger a larger move toward 79.35 and possibly 74.45 over the coming weeks and months.
Summary: Watch for a selling opportunity on a 4 hour close below trend line support that extends off of the October 8th low. Key support comes in at 85 and 83.60 (channel floor). Alternatively, a close above 87.30 would negate the bearish bias and turn our attention higher.