Well, at first, when you look at the 4H AUD/JPY chart, you see a sideways market.
1) The 200-, 100-, and 50-period simple moving averages are all clustered together.
2) The RSI has been pushing above 70 and below 30. The first half of July was bearish, but that didn’t last when price in late July broke above the earlier falling trendline. The breakout however, does not mean a bullish trend is developing, especially when price dipped back into the cluster of moving averages, and the 4h RSI dipped to 30.
(click to enlarge)
While there has been a sideways market indeed since April, I believe the market is showing bullish bias and gearing up for a bullish continuation scenario.
The daily chart shows a sideways market since April, one that followed a bullish development in February through March. This chart is where I gather the bullish continuation clues.
(click to enlarge)
– In May it looked like price was about to turn bearish after a push to 0.9304. This dip broke below a rising trendline, and pushed the RSI below 40, showing the end of the uptrend, and a loss of bullish momentum.
– However, no bearish trend was established as price came back up to the 96.50 high on the year in June to July 1st. The RSI did not push above 70 to show re-establishment of bullish momentum and price was unable to break to a fresh high on the year, so the bullish trend was stalled.
– Looking back, the dip in May was a clear-out. It got rid of the weaker bulls but was able to replenish with stronger bulls. It also got some sellers in the market who might have a stop above the 2014-high. Therefore, a break above the 2014 could really open up the bullish scenario.
– You can actually see a similar “clear-out” price action in July as price dipped below a common support/resistance pivot area around 95.20-30. Then it held mostly above 94.50 and is now pushing back toward the 2014-highs.
– With a couple of clear-outs, with the RSI showing slight bullish bias, with the moving averages still in bullish alignment, and with price starting to hold above them, I think it is closing in on time to break into fresh highs on the year.
RBA vs. BoJ
This Friday, we will get the Reserve Bank of Australia and Bank of Japan monetary policy announcements. If it is clearly a hawkish-RBA, dovish-BoJ scenario, AUD/JPY should very likely push above 96.50. However, even the central bank risk points to a bearish AUD/JPY, let’s observe what happens aroudn 94.50. Ability to hold north of this pivot can still keep the bullish continuation scenario alive. Otherwise, we should look toward another test of the 93.04-93.50 area as support.
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