AUD/JPY closes above the 200-D EMA but risks loom

  • AUD/JPY bulls will struggle on deteriorating economic data.
  • On the downside, 73.93 is the daily swing low target. 

Antipodean FX outperformed in the G10 basket and AUD/JPY is currently trading at 75.27, capped by the 200-day exponential moving average, EMA, consolidating following a burst through the 21-day EMA overnight. 

The pair is subject to risk appetite which waned leading into the G20 this week as investors turn pessimistic ahead of an expected meeting between the presidents of China and the US. A senior US administration official said the goal of the meeting on June 29 is to reopen negotiations rather than reach a broad trade pact, according to Reuters.

However, there are slim chances of a breakthrough. Analysts at Bank of America Merrill Lynch and Barings both said it is unlikely trade tensions between the world’s two largest economies will be fully resolved at a meeting and recommends defensive investment strategies. Merrill Lynch is predicting that negotiations could “end in another ceasefire, with both sides delaying additional tariffs”- such an outcome should be positive for risk and the AUD/JPY.

As for US data, the May US durable goods headline outturn of -1.3% was weak and weighs on the greenback following yesterday's miss in Consumer Confidence. AUD/JPY will be unable to perform on a deteriorating economic backdrop and stocks will be a key factor going forward. As can be seen in the chart below, there is a strong correlation between U.S. consumer confidence the price of the S&P 500 index, (red), with periods of US recession:

AUD/JPY levels

The cross has met the 200-D EMA and eyes are set on the 76 handle meeting the 50-D EMA. Stochastics on the daily chart are leaning bullish, crossing over 50 having turned higher out of oversold territory earlier in the month as the price broke above the trendline resistance. On the downside, 73.93 is the daily swing low target. 

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