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20 Apr 2018

AUD/JPY: Bearish outside-day vs yield differential

  • AUD/JPY created bearish outside day candle on Thursday.
  • Aussie-Japan yield spread continues to rise in the AUD-positive manner.

AUD/JPY is hemmed between the bearish candlestick pattern and a bullish (rising) 10-year Aussie-Japan yield spread.

The currency pair created a bearish outside-day candle on Thursday, signaling the rally from the March 23 low of 80.50 has run out of steam at 84.08 (April 13 high). A negative follow-through today would confirm the bearish reversal and open the doors to a deeper pullback to 81.49 (March 5 low).

However, the spread between the 10-year Aussie and Japanese government bond yield has risen to 277 basis points - the highest since March 12. Clearly, the yield differential is calling for further upside in the AUD/JPY cross.

As of writing, the pair is trading at 83.05, showing resilience despite the bearish outside-day candle.  Moving forward, the pair could find bids if the S&P 500 futures (currently trading flat) report gains. However, if the equities turn risk-averse, then the pair may explore the downside -  a move that would add credence to the bearish outside-day candle.

AUD/JPY Technical Levels

A break above 83.32 (Feb. 14 low) would allow a re-test of 83.94 (previous day's high) and 84.08 (April 13 high). On the downside, breach of support at 82.86 (previous day's low) could yield a sell-off to 82.58 (March 21 high) and 82.01 (March 7 low).

 

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