We discussed the AUDJPY exactly one week ago. At the time the pair had just broken support at 85.35 and looked determined to test the next key support at 83.73. With this in mind, we were watching for a selling opportunity on a rotation back to new resistance.
Unfortunately, that retest never came. But the pair did reach a low of 83.81 this past Tuesday, just 8 pips above the December 2016 low of 83.73.
Although we didn’t get an immediate retest, the past few sessions have produced something even more appealing. Since bottoming earlier in the week, the AUDJPY has carved out a rounded retest – something that is often more effective than an immediate retest of a broken level.
Now, because Tuesday’s low triggered a bullish engulfing candle, I’m inclined to wait for a sell signal from 85.35. More specifically, I need to see a long upper wick on the daily time frame. This would indicate that sellers are willing to make a stand at 85.35, which is now resistance.
Otherwise, a daily close back above the level would negate the somewhat bearish outlook. And I certainly don’t want to step in front of this market if buyers intend to reclaim the 85.35 handle.
Should we get a favorable sell signal from the 85.35 region, the next key support comes in at 83.80. A daily close below that would expose the mid-November highs from last year at 82.50.
For now, the jury is still out on whether the AUDJPY is likely to turn lower after Tuesday’s bounce or continue higher.
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