Technical Sentiment: Bearish
- Australian Employment Change disappointed on Wednesday, Unemployment Rate jumped back to 6.1%;
- Markets saw the Australian Dollar decline at a rapid pace starting Thursday morning, with a noticeable delay after these releases;
- Trend remains bearish, with lower highs and lower lows, yet the sell-off stopped on a major support cluster;
- Decision time for traders: bounce or long-term downtrend.
Nothing came out of AUD/JPY’s Bullish Engulfing Bar formed Wednesday, 8th October, as price failed to beat previous Lower Highs. This prompted bears to return with a vengeance on Thursday, pushing Aussie lower against the Yen down to the 200-Day Simple Moving Average.
Disregarding ranges, temporary stretches of choppy price action and short term bearish corrections; so far this year AUD/JPY stuck it out within a perfectly structured uptrend consisting of Higher Lows placed at crucial support levels. After five long weeks of relatively one-sided bearish action, AUD/JPY has now reached one of the few support clusters that actually matter for 2014’s main trend.
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Let’s see what makes this cluster so strong. Besides having the all important 200-Day Simple Moving Average in this area, a line depicting the natural boundary between bullish and bearish territory on any timeframe it’s drawn, 94.30 – 94.60 represents a major price pivot zone formed throughout 2014. Additionally, 38.2% Fibonacci retracement level (from this year’s low of 88.23 up to 98.66) is also located here, as is support trendline based on the most recent two Higher Lows.
On the Daily chart Stochastic has been showing oversold conditions for two weeks now, suggesting a bottom and a bounce higher may be in play. Unfortunately, a tight consolidation was the only reaction while bullish price action signals lacked continuation.
Thursday’s sell-off led to the formation of a large Bearish Engulfing Bar on the Daily chart. With a Daily close just above the 200-Day Moving Average, chances of a bullish bounce, however thin, are about to be put to the test on Friday. Such an event would be followed by a re-test of 95.40 – 95.85, where sellers would have to jump back in to protect the downtrend.
A break below 94.50 will immediately trigger a test of 8th August Low at 93.91. If this levels fails to hold, AUD/JPY uptrend will officially change to a long term downtrend, In which case we expect to see 92.21 very soon.
Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets