AUD/JPY looks ready to make a stronger bounce off forex support at the rising channel on its long-term time frame. Price is bottoming out on the weekly time frame and appears to have made a complex double bottom pattern, with price currently testing the neckline.
The bottom of the rising range is in line with the 100 SMA (simple moving average), which is still moving above the 200 SMA and reflecting an uptrend. However, stochastic is already indicating overbought conditions, which means that price could head back down to the channel support.
Going long at current levels with a wide stop below the channel and the 200 SMA could yield a high return on risk if one aims for the top of the channel at the 106.00 area. However, it would be prudent to adjust the stop to entry once price tests the 100.00 major psychological level.
Forex Support Bounce or Break?
Data from Australia has somewhat improved, but what’s really lifting the Aussie for now is the pickup in China’s manufacturing sector. Bear in mind that Australia is China’s number one trade partner, so any improvement in the world’s second largest economy could also be positive for the Australian economy.
If this keeps up, AUD/JPY might be able to climb from its current levels until the 100.00 area, with further rallies dependent on risk sentiment. The recent news on the US sanctions and Russia’s plans for counter action might weigh on risk taking in the coming days though.
In that case, AUD/JPY could make another test of the channel support at the 93.00-94.00 levels. Another bounce could lead to a more prolonged rally but there could still be a chance of a breakdown. After all, the BOJ has recently emphasized that the economy doesn’t need additional stimulus since it is recovering moderately.
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