The AUD/JPY has been consolidating since June, but we should be getting ready for a bullish continuation breakout.
Here are 6 technical reasons why we should anticipate a bullish breakout in the AUD/JPY
1) Bullish prevailing trend at least in 2014.
2) The moving averages in the daily chart are now in bullish alignment (200SMA above 100SMA above 50SMA).
3) Price is above all the moving averages and is tagging the 50-day SMA, testing it as support.
4) The daily RSI is not oversold, it is neutral.
5) The Inverted head and shoulders in the middle of an uptrend is a bullish sign. It reflects strength after a clear out attempt, which is represented by the head that dipped below the shoulders.
6) Price is about to tag a rising trendline
Reward to Risk Assessment for a Buy at 0.9540:
The AUD/JPY ‘s consolidation since June has support around the 95.20 level. While the support has stayed relatively flat, resistance has been moved higher and higher. This gives us a good level to look for invalidation of the bullish outlook.
Stop-Loss: A break below 95.00 for example should be seen as an invalidation of the bullish continuation scenario. Also note that a break below 95.00 will likely break the rising trendline we saw on the daily chart. Secondly, it should bring the 4H RSI below 40, in which case the prevailing bullish momentum would be killed. If the RSI holds above 40, the bullish momentum is still in place.
Target: The bullish outlook is to 96.50, but is not limited to this high because the prevailing trend is bullish, and new highs on the year is probable.
Price is hanging around 95.50 at the moment. Let’s study the reward to risk if an order to buy is placed at 95.40, common low of this past week’s consolidation.
RISK: If 94.80 is the stop loss, we have 60 pips risk.
REWARD: If the 96.50 level is the target, we have a potential reward of 110.
As you can see, even without anticipating new highs on the year, a buy from 96.40 has a reward to risk of almost 2:1.
Strong bullish technical conditions and good reward to risk suggests buyers might be looking to pop AUD/JPY. A break above 95.70, above this past week’s consolidation, should start this bullish attempt.
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