A 15% correction, oversold indicators, support level forming, interest rate differentials, intentions of central banks – how many reasons do traders want to buy AUD/JPY?

While many traders are focussed on the recently volatile USD/JPY, and locals are watching AUD/USD closely given recent falls, there is a logical next step trade – AUD/JPY. The arguments that apply in the first two pairs also apply to AUD/JPY, and are potentially magnified.

The historic stimulus program in Japan dramatically weakened the JPY and strengthened the Nikkei. These were “no brainer” trades – the government and the Bank of Japan made their intentions clear, and the markets responded. The problem with no brainers is that everyone jumps aboard – meaning the markets are vulnerable to a clearing out of positions- a correction.

This is what we are seeing in JPY trading.

USD/JPY Daily

20130613 usdjpy

 This is what a correction looks like. Note the oversold RSI, and the near support level. The fundamental big picture is that the US is likely to curtail stimulus well before Japan, and this should see USD/JPY rise.

However, falls in the AUD against the USD mean this correction is exaggerated in AUD/JPY:

AUD/JPY Daily

20130613 audjpy

 The recent fall in USD/JPY is just under 8% - in AUD/JPY, 15%.

Note too, the oversold RSI and emerging support level. Commodity prices are stabilising, and the outlook for AUD improving as fears about the effects of stimulus tapering and global growth move back from anxiety to concern.

This is good news for both swing traders and those with a shorter term focus. Last week’s low at 90.01 gives a clear level for stop loss orders, and recent resistance around 93.00 a short term target. One approach to the situation is two trades on different time frames.

Swing trade:

20130613 tkt sw

Shorter time frame:

20130613 tkt sh