Unfortunately, after being roughly 100 pips in profit the AUDJPY has turned sharply lower and activated the SL. We were expecting a similar move in length to the upside which would have taken the AUDJPY into the 96.50 resistance zone before turning bearish. The more significant play is on the short side, now the price action has broken a key support zone, we are looking to trade the AUDJPY down into the 88.40 support level over the next week. The Elliott wave count is still valid, despite the small counter-trend rally.
The JPY has faced a large amount of selling pressure over the past couple of weeks as the BoJ artificially kept rates low to support their economy. However, many analysts are suggesting the BoJ may need to let rates rise in the near future which will result in a rotation back into the JPY. Furthermore, recent comments from the FED Chair Jerome Powell suggests a US recession is a possibility in the near future. He said the Fed was “strongly committed” to bringing down inflation, which had reached its highest level in 40 years while trying not to cause a recession in the process. However, Mr Powell said that achieving a “soft landing” for the US economy would be “very challenging”. The Fed chair said he believed the US economy is currently strong, but acknowledged that a recession could happen. These comments, along with the current market sentiment, support a position going short on the AUDJPY, due to the safe-haven appeal of the Yen and the risk-off risks that put the AUD under pressure.
AUDJPY 4-Hour Chart
Trade Setup: Sell market execution, current price 93.55, stop loss 94.70 and take profit 88.35.
Stop loss: 115 pips
Take profit: 530 pips