Though AUD/USD was mostly unscathed from the Italian election disappointment, the same could not be said for USD/JPY, which is highly sensitive to risk trends. USD/JPY has fallen tremendously from above 94.0 opening this week to below 91.0 within 12 hours, and this effect is visible on other Yen pairs, including AUD/JPY.
Short-term chart is showing a rebound after breaking the support just above 95.0. The reasons of this rebound is fairly similar to the one found on Nikkei 225 – Abenomics followers seeking bargain. However price is unable to break above the support turned resistance, and this failure has now become a confirmation of the bearish breakout. However conservative traders may prefer to hold for a break of the previous swing low around 93.50 for additional confirmation of bearish intention, as price could simply be forming a new consolidation channel below the 95.0 level. Stochastic may agree with such a scenario as readings are close to the Oversold region, with readings potentially forming a trough when price is around 93.50.
Daily Chart shows the initial stages of a breakout with price falling below the rising trendline. The recovery of price also fell short of testing the trendline, placing bears on pole position. From the perspective of Daily Chart, price could also find potential support below 93.50 in the form of the consolidation zone from the entire Jan trading range.
There may be further fundamental reasons why a bearish breakout on long-term chart can fly. Earlier, AUD/JPY has been propped up mostly by Yen’s weakness rather than Aussie’s strength, due to dovish statements coming out from RBA. With risk trends strengthening the Yen even after yesterday’s USD/JPY rally, it will be hard for Yen to continue weakening on mere Abenomics hopes alone. Though RBA has recently appeared less dovish than before, AUD/USD continue to look weak, and it seems that market is still believing that a rate cut in 2013 is possible, though perhaps not in the near future. The bearish breakout technical scenario fits in well with such fundamental outlook, and hence could find more traction/momentum when the breakout has been confirmed.
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