Despite the bearish outside day candle on Thursday and Monday, the AUD/JPY cross has defended the weekly 200-MA level of 88.41, although risk reversals suggest the key moving average support is likely to be breached soon.
Currently, the pair trades at 88.45 levels. The US and North Korea rhetoric is getting too dangerous, as said by China U.N. Envoy. Thus, the Japanese Yen is likely to remain well bid against high yielding currency like the Aussie.
The downside in the AUD/JPY could be capped by a spike in gold prices due to rise in safe haven demand. Aussie usually catches a bid on rallying gold prices. The yellow metal rose to $1310 in the overnight trade after North Korean foreign minister Ri Yong Ho said that US Trump's comments over the weekend were clearly a declaration of war.
Risk Reversals slide
The one-month 25-delta risk reversal fell to two-week low of -1.875 on Monday. The decline indicates increased demand for the downside bets, i.e. Put options. Investors are clearly seeking downside protection against long spot positions.
AUD/JPY Technical Levels
A break below 88.23 [4-hour 200-MA] would open up downside towards 88.00 [psychological support]. A violation there would expose 87.69 [50-DMA]. On the higher side, breach of resistance at 88.77 [resistance on 1-hour chart] could yield a rally to 89.02 [1-hour 200-MA] and 89.32 [1-hour 100-MA].
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