As risk assets around the world take a breather following a dreadful start to the year, many associated currency pairs have followed suit. One pair that has rebounded quite aggressively from its February 11th bottom is AUDJPY.
Since mid February, the pair has managed to regain nearly 600 pips. However, the bulls have a couple tests coming up that could prove difficult to overcome, one being more difficult than the other.
Let’s start with the lesser of the two and one that is actually coming under fire as I type this.
Channel resistance that extends off the December 2015 high comes in near 83.50. At the moment, we aren’t seeing much selling pressure in this area, but that doesn’t mean things won’t change later in the session.
That said, given the Aussie’s strong bullish momentum of late, I wouldn’t be surprised to see this level fall.
So a close above channel resistance would signal a buying opportunity, right?
Not so fast. While a close above it would indicate that further gains are likely in the short-term, I can’t personally get behind an AUDJPY long given some of the other price structures that persist. As such, I prefer selling into strength rather than attempting to buy weakness.
But as always, timing is everything. This brings us to the next level of significance should the 83.50 handle give way over the coming sessions.
The larger, and much more substantial level in my opinion, is channel resistance that extends off the 2014 high at 102.83. This area has been tested on four previous occasions and would likely keep the pair well-offered if tested for a fifth time.
I have stripped some of the horizontal levels from the chart below in order to highlight the two areas I’m most interested in moving forward.
