AUD/JPY – Structure Suggests Bullish Continuation

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AUD/JPY - Structure Suggests Bullish Continuation

The AUD/JPY has been bullish this year, especially in the earlier part after it found support at 88.23 in February and rallied to 96.50 by April. Since then, the market has been consolidating.

AUD/JPY Daily Chart 7/14
audjpy 7/14 daily chart
(click to enlarge)

Looking at the daily chart, I believe there is still further upside risk, at least to 96.50, and likely beyond. Here are my reasons:

General trend and momentum
– As noted, the general trend was bullish, and the moving averages reflect that in the daily chart. The 50-day is above the 100-day, which is above the 200-day SMAs. They are all sloping up, and price is trading above all of them.
– The RSI has tagged 70, come down and failed to tag 30. This suggests lack of bearish momentum. However, when the RSI dipped below 40, it showed loss of bullish momentum – but I think it will re-establish that momentum soon.

Structure:
– Let’s start with the wave structure since the 88.23 low. Without getting into the details of Elliott Wave principles, we can see that the main push came in March and April. This should be considered the middle part of a trend (or wave 3). If so we should see price below it on the left, and above it on the right. So far, price has not cleared the 96.50 high.
There was a a dip in May down to 93.04. The fact that this dip held above 93, which was a resistance pivot in February, shows the bullish EW structure remaining true. We can consider this dip, wave 4 respecting wave 1, a key EW rule for impulse (or trending) waves.
– This EW wave count leaves us with wave 5. Some might argue that it has completed, with a failure to breach 96.50. Or, you can argue that the 93.04-96.50 wave was only wave (i) within wave 5. That means we are in wave (ii), ready for wave (iii, iv, v).
– A bullish continuation scenario will be on the back of clear-outs. The May-dip was a clear-out and the July-9-dip was also a clear-out. These bearish price actions were reversed right away, which reflects stronger bulls in the market, and a failure of bears to commit.

If price can stay north of 95.00 at this point, I would stick with the bullish continuation outlook. On the other hand, if price holds below 96.00, the bullish outlook is not taking off, so price is at the crossroads between 95 and 96.

AUD/JPY 4H Chart 7/14
audjpy 7/14 daily chart
(click to enlarge)

Looking at the 4H chart, we see that price last week fell below 95.16 short-term consolidation support. This is either a bearish signal, or a clear-out that paves the way for a bullish continuation in the daily chart. A clue that the bearish breakout is false would be if price can climb above 95.60, and push the 4H RSI above 60. Then we would see no respect of the broken range as resistance, and no development of bearish momentum.

 

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.