AUD/JPY fades recovery around 94.00 as firmer yields join indecisive China PMIs

• AUD/JPY grinds higher to defend the first weekly gain in three.
• China’s PMIs came in mixed for September, statistics from Japan came in firmer.
• Yields remain firmer amid hawkish central banks, recession woes.
• Risk aversion may challenge the recovery moves amid a cautious session.

AUD/JPY buyers flirt with the 94.00 threshold while snapping a two-week downtrend during Friday’s Asian session. In doing so, the cross-currency pair cheers firmer yields while paying a little heed to the mixed data from Australia’s biggest customer China, as well as firmer economics from Japan.

That said, China’s official NBS Manufacturing PMI rose to 50.1 versus 49.6 expected and 49.4 prior while the Non-Manufacturing PMI declined to 50.6 compared to 52.0 market forecasts and 52.6 prior readings.  Further, China's Caixin Manufacturing PMI dropped to 48.1 during the stated month versus 49.5 expected and prior.

On the other hand, Japan reported a decline in the Unemployment Rate to 2.5% in August while Industrial Production reversed the previous contraction of 2.0% with 5.1% YoY growth. Further, Retail Trade also improved to 4.1% YoY compared to 2.8% expected and 2.4% prior.

It’s worth noting that the US 10-year Treasury yields remain firmer around 3.80% during the seven-week uptrend despite reversing from the 12-year on Wednesday. The fears surrounding global recession and the hawkish commentary from the key central banks, including the Federal Reserve, the Bank of England (BOE) and the European Central Bank (ECB), despite the recently downbeat economics and supply crunch fears, propel the bond coupons. Additionally, the chatters over China’s inability to tame recession woes and the UK’s fears of more economic pain due to the latest fiscal policies should have favored the US Treasury yields.

It should be observed that the Bank of Japan’s (BOJ) likely inability to defend the yen despite recent market intervention appears to also favor the AUD/JPY prices. That said, the cautious optimism in the market, portrayed via mildly bid S&P 500 Futures seem to offer additional support to the risk-barometer pair.

Having witnessed the reaction to a slew of data from Australia and Japan, the AUD/JPY traders may remain cautious ahead of the key data, namely Eurozone inflation for September and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure (PCE) Price Index for August.

Technical analysis

As the RSI (14) and the MACD both flash bearish signals, AUD/JPY upside appears difficult. Also challenging the bulls is a convergence of the 50-day EMA, the previous support line from May and a three-week-old resistance confluence, near 94.80.

Meanwhile, 50% and 61.8% Fibonacci retracement of the pair’s May-September upside, respectively near 93.00 and 91.60, could challenge the downside moves.