AUD/JPY Technicals – Price continue to weigh on Rate Cut woes

Things are not looking great for AUD/JPY right now, as JPY looking to strengthen and AUD looking weaker.

Overnight trading pushed prices higher due to optimism from Ben Bernanke’s testimony to the House. Bernanke has stated that the Fed will most likely maintain the Asset Balance Sheet even after QE operations have ended, which gave confidence to the market. Also, Bernanke hinted at continued loose monetary policy for the foreseeable future as he predicted that unemployment rate will not fall to the desired levels until at least 3 years later. Previously he has mentioned that interest rates will be kept low until unemployment rate hits below 6.5%. Putting 2 and 2 together, it is clear that we should not see tightening of Fed’s policy belt anytime soon.

Yen weakened due to risk flows, which was pushed lower on the back of the BOJ’s Governor nomination – Haruhiko Kuroda. Kuroda has been the market’s blue eyed boy and USD/JPY traded higher earlier this week when rumors of his nomination was reported by Japanese newspapers. Today’s official nomination also produced the same effect, weakening Yen but USD/JPY is currently heavier with price unable to break its current Hourly Kumo.

Hourly Chart

On AUD/JPY front, the hourly chart also has its own Kumo to vanquish. Price is kept by the Senkou Span B (yellow parameter) which is the confluence with previous swing low on 22nd Feb. Though there was a bullish Kumo Twist just as price pierced into the Kumo, Stochastic readings is showing a peak which is higher than the peaks seen on 22nd – 23rd Feb. Price level is clearly lower than Feb 22nd though, which is an indication that the recent rally may be too aggressive too fast – pullback likelihood increases.

Fundamentally, AUD continues to look weak as latest Capital Expenditure data from the state down under supports case for further rate cuts. Q4 Capex fell 1.2% versus expectations of a 1% growth. 2013 capex forecast also few 8.1% versus 2012 figure. Unlike what RBA Glenn Stevens have said, other industries are not compensating for the decline in mining sector. Hence the claim that Australia can transit smoothly from the declining mining based economy to something else entirely isn’t clear currently, increasing likelihood of Stevens changing stance eventually if the economy does not improve.

Daily Chart

Not all is doom and gloom though, with current Kumo providing support. However, another way to look at it is to focus on the fact that price has pierced into the Kumo, and will continue to look bearish within the Kumo if the recovery failed to bring price out of the cloud. Price is also below the support turned resistance, though the support around 93.0 may still prevent any further sell-off as it is the confluence (or close to it) with the Senkou Span B (bottom parameter) of the Kumo.

More Links:
AUD / USD – Trying to Stay Above Key Support at 1.02
USD/JPY – Yen Remains Steady After Italian Election Fallout

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