AUD/JPY - Yield spread contradicts the bearish outside day candle

Omkar Godbole FXStreet Contributor

The daily chart of the AUD/JPY pair shows a bearish outside day candle, which signals the rally from the low of 85.70 may have run out of steam.

So far, the follow through to yesterday's bearish outside day candle has not been encouraging. The spot dropped to a low of 88.89 yesterday and remains on the back foot around the previous day's low.

Aussie-Japan 10-yr yield spread resilient

The drop in the AUD/JPY from the high of 90.30 to 88.89 is not backed by the decline in the Aussie-Japan 10-year yield spread.

The spread currently stands at 279 basis points vs. 281 basis points seen on Wednesday.

The resilience in the yield spread suggests the bearish outside day candle could turn out to be a bear trap.

AUD/JPY Technical Levels

A weak close today would confirm bearish outside day candle reversal and shall open up downside towards 87.68 [50-DMA], under which a major support is seen at 85.97 [100-DMA].

On the higher side, breach of hurdle at 89.42 [July 27 high] would expose 90.30 [previous day's high]. A violation there would open doors for 91.00 [psychological level].

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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