AUD/JPY Breaks 95, Moves into Downtrend

AUD/JPY Breaks 95, Moves into Downtrend

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Fundamentals

Between the sell-off in the Australian dollar this week and the rally in the Japanese Yen, AUD/JPY has broken below 95, a key support level for the pair. AUD took hit from lower consumer prices will the JPY benefitted from risk aversion and weakness in the U.S. dollar. It is no secret that the Yen crosses oftentimes take their cue from the majors and in the case of AUD/JPY the slide in U.S. Treasury yields drove USD/JPY and hence AUD/JPY lower. The dollar is in play in the week ahead with first quarter GDP numbers, a FOMC rate decision and non-farm payrolls scheduled for release. However no surprises are expected and there’s very little reason for the central bank to accelerate or slow the unwinding of Quantitative Easing meaning that the chance of a surprise is slim. As a result, Treasury yields could continue their downward course even if the central bank reduces monthly bond buying, which would add pressure on AUD/JPY. At the same time, if Russia decides to embark on a full military invasion of Eastern Ukraine, we could see a deep sell-off in all the Yen crosses. We don’t expect much upside momentum in the Australian dollar with only manufacturing PMI and producer prices scheduled for release.

Technicals

On a technical basis, the break below 95 has taken AUD/JPY into the sell zone according to our Double Bollinger Bands. This has been a key support level for the currency pair for the past month and now that it is broken, there’s no support until 94.00. Near term resistance is at 95.33. If AUD/JPY breaks above this level, then there is a chance for the currency pair to rise back to its April high of 96.50.

EUR/AUD – Bottom or Pause in a Downtrend

EUR/AUD – Bottom or Pause in a Downtrend

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Fundamentals

After a near one way trip to the downside EUR/AUD has finally found some support near the 1.4800 level as the Aussie has finally seen some profit taking near the 9300 level while the euro found support at 1.3700. The story with the EUR/USD remains the same – will ECB cut rates this week or won’t they? The rumblings from Frankfurt have been contradictory as policymakers acknowledge the that region is experiencing some disinflationary pressures but at the same time refuse to act on that information believing that this dynamic is temporary. Today’s CPI data was prime example as it came in weaker than expected but core remained at 1% leaving market divided as to whether the ECB will act. Tonight the market will get a look at German unemployment data with consensus expecting further reductions in the jobless rolls. However, if the numbers miss to the downside that would put further pressure on ECB to ease and could drive the euro lower taking the EUR/AUD cross below 1.4800 – especially if the RBA today remains relatively sanguine about the state of the AU economy.

Technicals

The EUR/AUD has downside support at the 1.4775 level but of that is given then 1.4500 could come into view. Meanwhile 1.5000 caps the upside, but a break above that figure could take the pair towards 1.5200 as the strong bottom develops.