May 13, 2021 14:07:41
AUD/JPY is one indicator many traders can use to identify market risk sentiment as it is a classic macro risk barometer. It incorporates two of the market’s favourite “risk on” and “risk off” currencies – AUD which correlates strongly with commodities and China, and JPY which is the traditional safe haven currency (due to Japanese investors who hold many offshore assets and tend to liquidate and drive up yen demand in times of trouble).
Technically, there are no surprises in the steady uptrend from the lows last March with the pair accelerating higher after the positive vaccine news in November. The long-term trendline from the pandemic trough held prices when they paused before the US election and the news of the vaccination game changer, and it continues to offer support to recent pullbacks that took place a few weeks ago and today.
This week started off with a shooting star candle warning on Monday – this candlestick has a long upper wick and small body near the day’s low and typically occurs after an advance. The pattern is regarded as bearish during an uptrend as prices tried to rally significantly during the day, but sellers then took over and pushed the pair back down toward the open. A “doji” on Tuesday denoted some indecision before yesterday’s risk off day saw the third straight day of losses. The RSI has now drifted back towards 50 but that long-term trendline has held the lows again this session.
With stocks fighting back this afternoon with some notable moving averages offering support in some of the stock indices, bulls might take this opportunity to open a position after considerable risk aversion this week. The Vix spike is also currently reversing. Place stops below the trendline and 50-day SMA below 84 while upside targets are this week’s high at 85.80 ahead of 87. You might want to wait for a solid weekly close above the 85 barrier which should then entice more buyers to the fray.
Or like we said at the beginning, use this pair as your guide to judge the market mood going forward and if the risk off mood does continue, watch a break of the trendline and position for an extended selloff.
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