Prepare for a Correction in the AUDJPY

Key Points:

• AUDJPY reaches reversal zone.

• RSI Oscillator flirts with over-bought levels.

• Monitor the pair for a corrective pullback.

There have been some interesting moves in the AUDJPY over the past week as the currency pair has rallied sharply due to both technical and fundamental reasons. However, despite the sharp upward move the pair has reached an inflection point that could see it reversing lower in the coming days.

In particular, the 4-hour timeframe is providing some important clues to the pair’s technical direction over the next few sessions. Price action has clearly seen a sharply rising trend that has taken it right to a key reversal and resistance point at the 79.00 handle before a failure to cement a further move to the upside caused the pair to largely moderate.

Further providing some support to the short side contention is the RSI Oscillator which is now flirting with overbought levels. In addition, the MACD has also reached a key tipping point and we may see the indicator trending lower in the near term. These indicators are therefore painting a picture of building pressure and predisposing the pair for a corrective pullback in the short term.

Subsequently, there are plenty of technical reasons to suggest that we could see a corrective move for the AUDJPY in the coming sessions. However, price action hasn’t quite entered the corrective phase just yet and we may see some sideways movement near the 79.00 handle before the structure builds and collapses. Subsequently, monitor the pair’s charts for any bearish candle patterns that may signal the commencement of the move in the coming days.

Fundamentally, the Australian Dollar remains largely overvalued across a variety of cross-pairs following the Reserve Bank’s decision not to cut the official cash rate this week. So it is no surprise that the pair has rallied but keep a close watch on the Australian Trade Balance and JPY Average Cash Earnings figures, due shortly, as they are likely to impact the pair’s fundamental direction.