AUD/JPY swoops lower as the yen hardens across the board

  • AUD/JPY has taken a trip to the downside from 78.33 to a low of 78.08.
  • Plenty of risks ahead for the week to keep the market's risk barometer in vogue.

AUD/JPY is highly correlated to risk events due to the yen's status as a safe haven and the Aussie's link to commodities and high beta qualities which makes it a proxy for risk trading. The number of events this week that is leading up to the FOMC blackout where and sentiment data will take up the driving seat for financial and commodity markets is likely going to make for a lot of market volatility and subsequent price action in the cross. 

On the US calendar, US retail sales, industrial production, new home sales, housing starts, factory orders and regional PMI data for January - (Wednesday’s scheduled retail sales and business inventories numbers could well be delayed due to the U.S. government shutdown that has now entered a record for length).

We also have multiple Fed speakers again before the FOMC blackout and they will likely signal a pause in the tightening cycle while remaining upbeat about the economic outlook. On the political front, Sweden, where parliament is set to vote on a new government on Wednesday, and the UK will be in focus. Brexit risks have moved to the forefront of markets again and the yen is likely to come into play, fulfilling its role as a safe haven for investors at times of uncertainty. 

Chinese trade data in focus

More locally, the December data out from the Asian region has indicated that 2018 has ended on a weaker note, and over a week where we will be inundated with trade numbers, considering the Sino/US trade spat risks, today's Chinese trade balance could be a catalyst to kick the week's volatility off in the cross, and in thin markets, with Japan n holiday, the ADRs, (average daily ranges), in pairs could be greater. 

"Undoubtedly, China data will be watched closely as the latest round of trade talks have ended on a positive note but without much material progress. Will there be anything in this report to cheer President Trump? Nothing really at all. Judging by China’s ongoing widening trade surplus - one month’s figures aren’t going to make any dent. China's trade surplus with the US surged 17% in the first 11 months of 2018 from a year ago even as the total trade surplus was 19% lower on the year," analysts at ING Bank explained. 

AUD/JPY levels

AUD/JPY is consolidated around the picot of 78.15, but the double top highs in the 78.30s and lack of bullish momentum behind the recent correction from the flash crash lows leaves the trajectory vulnerable for a test of the cluster of moving averages guarding a break down to S2 located at 77.63. 

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