In the same way it can take a long time to turn a large ship, the same can be said for a change of long-term trend. And if clues on the AUD/JPY weekly chart are anything to go by, we may need to hold into our hats as bearish momentum has been picking up after a multi-month turnaround.
AUDJPY 1 W Chart
From late 2016 to early 2018, AUD/JPY remained confined within a bullish channel, yet clues slowly emerged to suggest all was not well. As seen on the weekly chart, its’ trajectory was relatively shallow when compared with the decline from the 2014 highs. In addition, two bearish pergences were seen between Dec ’16 and Sep ’17 which preceded a lower high in late 2017. And all of this was the build-up to an eventual break of the channel in Feb 2018.
Put together it suggests the ‘rally’ from the 2016 low was a correction and that, at best, it is on its last legs. Still, bulls may be quick to point out the bullish piecing pattern which held above the April 2017 lows and, until it is broken, perhaps it could rebound after all.
AUDJPY 1 Day Chart
Zooming into the daily chart, momentum since the 89.06 high is predominantly bearish and is more in line with momentum during the late 2014 to mid-2016 decline. From a macro perspective it may send chills to global markets as AUD/JPY is seen as a barometer of risk for FX markets.
Taking a closer look, we note the two bearish pinbars which have respected a confluence of resistance.
- November lows (84.34 – 84.53)
- 38.2% Fibonacci retracement (89.06 to 81.48 low)
- Re-test of the rising channel
With two failed attempts to break the resistance zone we see the potential for a swing high to have formed. It’s not clear at this stage if AUD/JPY will fall directly back to the 81.48 low, but bearish momentum from the 89.06 high suggests it will at least try to. And with yesterday’s low having been breached it shows bears are taking back control.
Something which slightly spoils the picture is how the initial pinbar high penetrated both the channel and prior swing high. Ideally we’d prefer to see shallow retracements and prior swings remain untested. But in context of the dominant momentum and that the resistance cluster has been respected, the near-term appears to favour bears until momentum turns decisively bullish.