Ross Woodfield
Blackwell Global Investments Limited
A large wedge is forming between the Australian Dollar and the Japanese Yen which could lead to a breakout lower. Alternatively we could see a bounce off the lower bullish line and a movement back to the top of the shape.
The Aussie and the Yen have both had a tough time against the US dollar, depreciating over 5% each in the past six weeks. But against each other is a different story. The recent weakness in the Aussie has seen a pull back from the 16 month high the pair saw earlier this month. The high was reached on the back of news that the government pension will be reformed with more focus on equities, which drove demand for the Nikkei. Since the Nikkei and the Yen have an inverse relationship, the Yen weakened against all partners.
The Aussie has been talked down by the Reserve Bank of Australia (RBA) lately and the macro data has not been helping it at all. The result is the confirmation of an ascending wedge which is usually taken as a sign a bearish reversal is on the way.
There are two outcomes from the current position which is just on the trend line. Firstly we could see a pull back and a continuation of the shape. In that case we could see a touch of the top line close to the 100.00 level. Secondly we could see a breakout of the pattern and the confirmation of the bearish reversal.
The Stochastic Oscillator is sitting in oversold territory so we may in fact see a bounce off the trend line. A movement higher will find resistance at 96.259, 96.870 and 97.517. If a breakout were to occur it would pay to enter on the pullback once the breakout is confirmed so we don’t get caught out by a false one. Look for support to be found at 95.002, 94.526 and 93.915.
Regardless of the outcome, the ascending wedge in the AUDJPY pair is an interesting setup that could provide opportunities for traders. This is one to watch.
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