Technical View
Since the turn of the year, price has been on a rally, rising to a high of 79.83. However, Stochastic had given a bearish divergence warning when price made the high at 79.83. This is a warning of a potential price high. This divergence occurred in the extreme zone of Stochastic. This reinforces the important of the stochastic divergence warning. MACD has been weak as seen by the flatter MACD’s histogram peaks. Price has reached the Fibonacci 50% correction point which was just below recent price high. Price inability to breach Fibonacci 50% or 62% of correction is usually a sign of a corrective rally.
Fundamental View
RBA in its latest monetary meeting on 7th Feb 2019 changed its track in interest rate. The next direction in interest rate is even with a rate cut as likely as a rate hike. RBA’s change to neutral stance is likely to scale back demand for long AUD/JPY especially for those “carried” trade.
Australia economic and fundamental conditions have deteriorated just like other major global economies. Australia has a high household debt and high real estate prices. Real estate prices have started to decline recently and with a high household debt, it could lead to more mortgage defaults and weakened the Aussie economy.
A slowing Chinese economy will weaken the Australian economy as well as the Australian currency. China is a major buyer of Australia’s natural resources and a weakening China’s economy is likely to reduce demand for Australian resources. This could lower Australia’s Gross National Product.
Strategy
We are recommending a short sell for AUD/JPY at 79.00 for a decline to 76.00 with a stop at 80.60. Expected trade duration is about 3 months