The bulls come back strong as the AUD/JPY price rises amid a lack of catalyst in the market.
Although many are concerned about a potential pullback from record highs, momentum traders will remain bullish on the Australian dollar because they believe “risk-on” sentiment will continue to prevail into 2019. The bulls also think that volatility in international markets should increase ahead of Federal Reserve meetings later this week; when it finally does, they expect a stronger risk appetite to resume and push prices higher.
Risk-on sentiment has been driving the Aussie higher with little resistance, but it’s not clear if this trend will last until after Christmas; “we haven’t seen any rally yet,” an FX trader said on Wednesday. “All the news is already priced in.”
The AUD/JPY pair
Trades at a 12.8% premium to the Aussie’s 50-day moving average, making it one of the most popular carry trades globally. Some technical analysts argue that once this premium is breached, a 10% correction can be in store for the pair. A pro-risk environment has been in place for much of 2017, but if this changes and investors start unwinding their bullish currency positions, the Australian dollar could face steep losses.
Globally, both bonds and stocks have started to become more volatile; “it’s an environment we’re not used to,” another trader said on Wednesday. “Buy the dip.”
The U.S. dollar has been in a bull market since the start of the year, but this could change if it becomes apparent that economic growth will be slower than expected. The Fed is also on track to raise interest rates in December, which could spur volatility in other markets and push the greenback higher. Weaker domestic economic data for December could also lead to weaker growth prospects and higher rates ahead of next year’s presidential election.
A weekly close below $70 would be bearish for the currency, but most technical traders think it will fall further before this happens; “it’s still falling down,” a trader said on Wednesday. “Whatever happens from now, it’s going to get worse.
What’s the difference between technical analysis and fundamental analysis?
Technical analysis tries to measure market trends by analyzing statistical data generated by market activity, such as past prices and volume. Fundamental analysis, on the other hand, uses economic factors like GDP growth and corporate earnings to predict how the markets will perform in the future. Most of these patterns are already known, but traders use them as reference points; it’s similar to driving on a highway: you don’t need to memorize every turn along the way because it’s already been mapped out for you.
What’s the difference between charting, technical analysis, and market timing?
Chartists look at historical data and market patterns and use those to identify possible trends in the short term. Markets tend to follow predictable patterns that can be found through charts or by analyzing fundamentals. Technical analysts find these price movements by studying charts and looking for what certain trends look like when they happen.
Market timers rely on intraday analysis and trend-following methods, which are quite different from technical analysis. Traders who buy into a trend early enough can earn significant profits working with indicators; other traders won’t be able to catch up to them if they are trading according to prediction models.
AUD/JPY price rises
Technical traders are bullish on the AUD/JPY pair following news that the Reserve Bank of Australia (RBA) will be raising interest rates again in December. They believe Australia’s economy is in good shape. “The budget is coming, we’ll finally see what they’ve been talking about,” a trader said. “People are buying up assets and pushing our currency higher.”
A 10% correction could be in store; a trader said on Wednesday that these moves were part of the process and not indicative of whether another correction is in store for 2018; but if this happens, it’s unlikely to last long because the AUD/JPY pair is already trading at a premium to its 50-day moving average (MA). It doesn’t seem likely that this premium will be breached in 2018, but there’s no telling what will happen next.
AUD/USD price rises
A healthy economy and a rising local currency have been in place for much of 2017, but analysts are expecting these trends to change in the coming months. “From now until Christmas day, people are going to start moving money out of cash,” an FX trader said on Wednesday. “There’s going to be massive buying pressure.”
The pair could trade at a discount to the Japanese yen in 2018; this would make it attractive as a haven, which would drive its price higher and make commodities more expensive too.
