AUD/JPY risk limited near 100-SMA; risk-on towards 90.00

As the NA session ends, AUD/JPY traded at 86.82, up +0.95% on the day, having posted a daily high at 87.07 and low at 85.94. The currency cross continues a 2-day winning streak as investors and traders await Trump's inauguration ceremony to cheer out-of-the-box initiatives or reduce risk exposure which should put down any hopes for near-term risk takers.

To note, historical data indicates that the highest performance during January clocked at +0.95 gain (yesterday's performance). On the other hand, the lowest has been -0.91% loss (Jan.5)

RBA against the wall; Fed surprises in 2017?

David Rogers, Market editor at The Australian, notes that while the Australian dollar bounced from US71.60c to US75.69c in recent weeks as the US dollar retreated amid a pullback in bond yields, it dipped to US74.94c on Thursday as surprisingly hawkish comments from Fed chief Janet Yellen put renewed upward pressure on US bond yields.

He further writes, "While the Reserve Bank of Australia has limited room for further interest rate cuts, it will be in no hurry to hike amid stubbornly low inflation, a fragile jobs market, and out-of-cycle mortgage rate hikes. At the same time, the Federal Reserve could easily respond to Donald Trump’s fiscal plans by hiking US interest rates by more than the market currently expects. That’s the key takeaway from Fed chief Janet Yellen’s speech on The Goals of Monetary Policy and How We Pursue Them."

Technical levels to watch

In terms of technical levels, upside barriers in the medium-term are aligned at 88.30-50 (horizontal resistance zone) and above that at 89.92 (200-SMA). While supports are aligned at 84.90 (low Jan.15), and below that at 83.70 (low Dec.25).

On the long-term view, there is evidence to estimate a fragile Australian economy; not heading to recession. Furthermore, China exponential growth is in the past which poses additional risks that limit the upside potential for this currency cross. To the upside, the first tough handle to crack would be 88.04 (long-term 61.8% Fib), later 88.93 (short-term 50.0% Fib) and finally, 92.82 (short-term 61.8% Fib). If market participants were to adjust risk exposure, then the most logical downside target is located around 81.84 (long-term 50.0% Fib).

All eyes on Trump; Crucial address to determine USD direction