A risk-off theme dominates the market

AUDJPY is the biggest mover out of the main currency crosses and also associated cross rates, presently showing a 0.5% decline on the day so far, although off its lows.

The Aussie Dollar, and the AUDJPY cross in particular, is a liquid forex market proxy on China, and more broadly global investor risk appetite, as the Yen continued to rise as risk aversion coursed through global markets. So in the prevailing heightening in US-China trade tensions, the cross is a natural short.

The cross earlier printed a 4-month low at 76.34, while it is significantly moving below the 77.30 level for a second consecutive day. The latter reflects the 6-month Support, which is the 50% Fibonacci retracement level set from the sharp downleg seen from 83.89 down to 70.60 low, between December and January.

Hence as April and May so far have not been proven beneficiary for the Aussie, bearish outlook is expected to remain strong in the daily and weekly basis.

Daily momentum indicators are negatively configured, while in the weekly chart MACD lines posted a bearish cross below neutral zone. RSI is extending its line lower.  This picture implies strong negative bias, with poor positive momentum only in the near term as a reaction/correction of the asset’s sharp price decline.

Next Support persists between the 61.8% Fibonacci level and August-September Support, at 75.70-76.00. Further declines in the long term could lead towards 74.53 and 70.60. On the flip side, a positive reaction could find immediate Resistance at 77.30 and further up, at 78.85. However, this is not expected to be sufficient to raise hopes to the upside again.

Markets attention will now fall on Chinese Vice Premier Liu’s 2-day visit to Washington, which comes with Trump’s administration threatening to raise tariffs. China has threatened to retaliate, so a lot is riding on Liu’s visit.

Nevertheless, another thing that extends investor’s concerns, is the news that North Korea has fired at least one “unidentified projectile”, according to South Korea’s Yonhap news agency. This comes just five days after the last batch of apparent test firings. The launches coincided with annual trilateral defence talks between South Korea, the US and Japan.

Washington has been measured in response to recent North Korea missile activity, but the latest episode will be an addition to the potential list of investor worries.

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Andria Pichidi

Market Analyst

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