AUD/JPY Price Forecast: Bearish Engulfing Pauses Bullish Advance

EXPECTATIONS AROUND RATE OF GLOBAL RECOVERY MAY SLOW AUD/JPY ADVANCE

The Australian Dollar, along with its Australasian counterpart the New Zealand Dollar, has benefitted from the anticipated roll-out of the covid-19 vaccines and the anticipated economic recovery that is expected to follow suit.

After the initial outbreak, China, Australia, and New Zealand have managed to drastically decrease the number of new infections which many views as a positive sign for their respective economic recoveries.

Today China released better than expected GDP figures for Q4 2020 which is likely to have a positive knock-on effect for Australia due to their interrelationship, often referred to as the ‘core-perimeter model’.

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China GDP

However, the positive GDP data did little to stem the recent dip in AUD/JPY which calls into question whether the rest of the world is likely to experience an economic recovery like what is expected China and, by extension, Australia and New Zealand. Despite vaccines going ahead, there are a number of challenges that could impact the rate at which they can be deployed, such as cold storage, supply, and efficient implementation.

RISK EVENTS ON THE HORIZON

Thursday is a crucial day for the pair as Australian unemployment data is released along with the Bank of Japan’s (BoJ) interest rate decision.

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AUD and JPY economic calendar

For all market-moving data releases and events see the DailyFX Economic Calendar

KEY TECHNICAL LEVELS

Towards the end of 2020 and beginning of 2021, the Australian dollar was viewed as a benchmark for improving economic conditions and was often mentioned in headlines alongside the words ‘risk-on’.

The weekly chart below shows why this was the case as the AUD/JPY currency pair reveals what appears to be an inverse head and shoulders (long- term bullish reversal) pattern.

Weekly AUD/JPY Chart Highlighting Bullish Run

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