- Minor uptrend phase of AUD/JPY since its 1 June 2023 low 0f 90.26 has reached overstretched condition.
- The overstretched rally of AUD/JPY is characterized by a 14-month high seen in the Bollinger Bandwidth (a measurement of historical volatility).
- Short-term upside momentum has started to wane.
Fig 1: AUD/JPY medium-term trend as of 19 Jun 2023 (Source: TradingView, click to enlarge chart)
Fig 2: AUD/JPY minor short-term trend as of 19 Jun 2023 (Source: TradingView, click to enlarge chart)
The AUD/JPY has rallied as expected and surpassed 95.50 short-term resistance as highlighted in our previous analysis, “AUD/JPY Technical: Rallied to 6-month high” published on 9 June 2023 (click here for a recap).
The AUD/JPY has printed a current intraday high of 97.67 today, 19 June in the Asian session, and the current minor uptrend phase in place since its 1 June 2023 low 0f 90.26 has recorded a gain of +741 pips (+8.2%).
Right now, several key technical elements advocate the risk of an overstretched rally, which increases the risk of minor corrective pull-back within a potential ongoing medium-term uptrend phase since the 24 Mar 2023 low of 86.06.
Daily volatility of AUD/JPY has increased to its highest level in 14 months
The daily Bollinger Bandwidth (a measurement of historical volatility) of AUD/JPY has increased significantly in the past three weeks and its current level is at 0.09 is the highest since 11 April 2022.
In addition, the recent price actions of AUD/JPY (15 & 16 June 2023) have two consecutive daily closes above the upper Bollinger Band (see daily chart).
Hence, these observations suggest the up move from the 1 June 2023 low of 90.26 is overstretched (high volatility condition) which may lead to an impending lower normalized volatility condition that is characterized by an impending potential pull-back in price actions of AUD/JPY.
Short-term upside momentum has dissipated
The 1-hour RSI oscillator has exited from its overbought level and just broken below a key corresponding support level of 43.5%.
This short-term momentum factor suggests that the current minor uptrend phase of AUD/JPY since the 1 June 2023 low of 90.26 has started to lose its strength, increasing the risk of a minor correction pull-back (see 1-hour chart)
The near-term supports are coming in at 95.55 (also the 13-day moving average) and 94.80 (38.2% Fibonacci retracement of the minor uptrend from the 1 June 2023 low to 19 June 2023 high).
A clearance above 97.70 short-term pivotal resistance negates the bearish tone to see the medium-term resistance coming in at 98.40 (13 September 2022 swing high area).
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Kelvin Wong