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Previously we’d flagged AUD/JPY’s potential for a 300-point drop after it broke out of a 5-month range. Although we’ve yet to see the downside persist, recent price action puts this potential back in the spotlight.
We find it no coincidence price is currently residing around 80.50, as today’s close will be the difference between a breakout or a fakeout on the monthly chart. Following a 5-month sideways range, a close below 80.50 would mark a well-deserved breakout from compression for the bear camp. And in doing so brings ‘Trump’s electoral low’ at 76.78 back into focus.
Switching to the daily chart we can see that prices chose to mean revert from the 79.70 low after teasing bears with a bearish breakout. Although the retracement has taken the cross back within range, we still see its potential to move lower considering yesterday’s close.
Suffering its worst session in 5-months, a prominent swing high has formed below a cluster of resistance (a 50-day average, 50% Fibonacci level and the 81.81 low). Given how momentum turned at 84.54 and 83.94 after printing a dark cloud cover bearish engulfing patterns, yesterday’s developments appear constructive towards further downside whilst we remain below 81.81.
A minor rebound from current levels wouldn’t come as a huge surprise as we approach the UK and US open but, if we are to close the month below 80.50 today, the bearish argument would become the more compelling as we head into next week.
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