AUDJPY has been trending lower, moving in a short-term channel on its 1-hour time frame. Price has bounced off support and is on its way to test the resistance at the 77.50 minor psychological mark.
This resistance lines up with the 38.2% Fibonacci retracement level and the 200 SMA, adding to its strength as a ceiling. The 100 SMA is below the longer-term 200 SMA, confirming that the path of least resistance is to the downside and that the selloff could carry on. In addition, the gap between the moving averages is widening so bearish pressure is strengthening.
At the same time, RSI is already indicating overbought conditions, which means that buyers are already exhausted and ready to let sellers take over. Stochastic is still on the move up so there might be some buying pressure left to complete the correction. A move past the Fib levels, however, could signal that a reversal is taking place.
Earlier in the week, the Reserve Bank of Australia cut interest rates by 0.25% as expected. Meanwhile, the Japanese government announced more details on its 28T JPY stimulus program, but this was met with a yen rally since market participants seemed to be expecting more aggressive easing efforts.
So far, the pickup in risk appetite spurred partly by the rebound in commodity prices has allowed the Aussie to regain ground against the Japanese yen. However, the impact of the rate cut could soon weigh on the higher-yielding currency, along with expectations of additional easing from the Reserve Bank of New Zealand next week.
Japan printed a stronger than expected 1.3% gain in average cash earnings for July, putting upside pressure on inflation and lessening the need for the Bank of Japan to increase stimulus.