AUDJPY has been trading between support at the 78.50 minor psychological level and resistance at the 80.50 minor psychological level. A range breakdown seems to be looming as price is starting to tread below the support area.
Stochastic is already indicating oversold conditions so a bounce might be possible. Similarly RSI is in the oversold area but is showing that selling pressure is still present. In addition, the 100 SMA is below the 200 SMA, confirming that the path of least resistance is to the downside.
A break below support could spur losses of around 200 pips for AUDJPY, as this is the same height as the chart formation. But if this break lower proves to be a fake out, AUDJPY could still make a 200-pip climb back to the top of the range. The gap between the moving averages is narrowing so an upward crossover might be possible.
There are no major reports lined up from Australia this week but the reports from China released earlier on could put downward pressure on the Aussie. Fixed asset investment and retail sales declined and came in below expectations, spurring speculations of weaker demand for Australia’s raw material products.
Later on in the week, the BOJ statement could bring some volatility to this pair, especially if central bank officials warn about the dangers of a strong currency. Even though Japanese officials agreed to avoid competitive currency devaluation, they could still ramp up their jawboning efforts to engineer yen weakness.
Overall market sentiment could also have a strong say on where this pair might be headed next. For now, risk-off flows are dominating forex price action as traders are feeling the jitters ahead of the EU referendum and the central bank decisions scheduled this week.
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