AUDJPY compressing near multi-month lows

The FX barometer of risk tried to break to its lowest level since November 2016 this week. And with bullish momentum sorely lacking, we’re seeking opportunities to enter short.

We can see on the weekly chart that price action has been confined to a choppy range between the 80.50 to 84.50 area since March. The range itself may underwhelm at first glance, but clues are building up for a break lower.

Since the 90.31 high we’ve seen two lower highs and lows. A 50% Fibonacci retracement level has capped the upper resistance zone but, more importantly, momentum has rolled over these past two weeks to suggest bears now have the upper hand. Although this week’s candle is yet to be concluded, we note this week’s bearish range expansion follows on from two bearish hammers. And that since the 21st May, three spikes higher failed to penetrate the upper resistance zone to suggest all was not well at those highs.

Now lingering within the bottom quarter of the range, a close around current levels tips the scales in favour of a bearish break of 80.50 in our view. And, with little obvious support obscuring the view, ‘Trump’s electoral low’ comes into view all the way down at 76.78.

Focusing on the daily chart, bearish momentum from the 84.54 high has been aggressive and the surge lower came close to testing 80.50 support on Tuesday. Currently compressing near the lows, we’ll keep a close eye for a resumption of this move and eventual break of this key support level.

If a low volatility retracement is to occur and potential reward to risk ratio allows, a short trade could be considered with a view to target 80.50 support and, if luck should have it, beyond.