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AUD/JPY – Will the Uptrend Hold?
Tomorrow is the final major economic event of the year as the market get ready for the FOMC rate hike decision. The market is essentially convinced that given the current geo-political and economic tensions in the US, the Fed will produce a “one and done” rate hike at tomorrow’s FOMC meeting.
Although the vast majority of market participants expect the Fed to finally move off the zero standard and begin normalizing monetary policy, the expectation is that the Fed will communicate that rates will remain stationary for a considerable period of time. The view is that with the current volatility in the equity markets, Ms. Yellen and company will not want to add to the turbulence with any hawkish talk.
There is however a chance that the Fed may want to assert its credibility and if Ms. Yellen suggests that the tightening cycle may indeed commence in earnest, the complacent dollar shorts would be caught flat footed.
That’s why AUD/JPY presents such an interesting challenge. A timid posture by Ms. Yellen is sure to send USD/JPY tumbling and the decline is likely to offset any bump in the Aussie itself. On the other hand if the Fed assumed an aggressive posture both USD/JPY and Aussie dollar may rise on the thesis that the Fed sees a benign global growth picture ahead.
Technically as long as the pair holds the 85.00 level it remains in a uptrend with a series of higher lows.