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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.
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.