AUD/JPY prints swing high ahead of BOJ: Asian Open Date – 27th July 2023

Market Summary:

• The Fed unanimously voted to hike their interest rate by the expected 25bp to 5.5%, but left the door open to further hikes with its ‘data-dependant approach’
• Jerome Powell’s speech was deemed slightly less hawkish than anticipated judging from the market reaction,
• Powell highlighted the importance of the June CPI report when he said “we will be looking to see if the signal from June CPI [of lower inflation] is replicated”, which keeps another hie on the tabe if it doesn’t decelerate quickly enough
• Fed Funds continue to favour a hold in September with a 78% probability
• A softer than expected set of inflation numbers from Australia sent AUD pairs broadly lower and the ASX above 7400, on renewed bets that the RBA will be able to hold rates again at their August meeting
• Japan’s services price index was also softer than expected at 1.2% y/y (1.4% forecast, 1.7% prior), underscoring expectations for the BOJ to stand pat again on Friday
• Business and consumer loans were also below expectations across the eurozone in further signs of a weak economy ahead of today’s ECB meeting

Events in focus (AEDT):

• 11:30 – Australian trade balance data:
• 11:30 - China’s industrial profits YTD: We’re not expecting this ship to suddenly turn around given the prior read was -18.8% y/y, but a slower contraction alongside this week’s news of incoming stimulus could soften the blow of the recent slew of underperformance of the economy
• 22:15 – ECB interest rate decision: A 25bp hike is almost a given, but I doubt the ECB will provide a strong indication for their September decision, but we know it is not as certain as it was with some important members stating it was likely down to incoming data (which so far has nt been favourable for a hike)
• 22:30 – US data dump: Durables, GDP,
• 22:45 – ECB press conference
• 00:15 – ECB President Lagarde speaks

Technically Speaking:

• The US dollar index retraced lower for a second day, although found support just above the April low
• USD/JPY retraced lower for a third day
• AUD/USD formed a 2-bar reversal day (dark cloud cover) but it closed above the 200-day EMA after finding support just above the 200-day EMA. We may see a slight bullish follow through today but, overall, its next directional move seems ambiguous due to weaker USD and softer AU CPI
• The Dow Jones Industrial (DJI) closed higher for a 13^th consecutive day, a bullish sequence only seen once before in 1987 (yes, year of that big crash)
• The Nikkei 225 is trying to turn higher in line with our bullish bias, since its doji (higher low) on Friday, and has held above Friday’s high since. A break above 32,900 assumes bullish continuation.
• Hang Seng
• The China A50’s 3-day rally has stalled just below 13,000, with the 13,088 high also a level to provide potential resistance. From here we’d like to see a pullback and evidence of a higher low above 12,666 to help improve the potential reward to risk for a long setup and move towards 13,500.
• Gold rose for a second day and appears set for another crack at the highs around 1985. Any incoming weak data from the US can hopefully help makes its way to 2000.

ASX 200 at a glance:

• The ASX 200 closed at a 5-month high during its most bullish day in nine
• It finally closed above 7400 (but only just), and flat SPI 200 futures suggests there could be some noise around that level as the breakout currently lacks some conviction
• 62.5% of ASX 200 stocks advanced, 29.5% declined, 8% were unchanged
• As before, we’d prefer to remain nimble and seek only intraday setups

AUD/JPY daily chart:

It was the most bearish day in two weeks for AUD/JPY, as the Aussie was allowed to fall sufficiently against the yen thanks to softer CPI figures whilst the weaker US dollar helped support AUD/USD. Given the depth of yesterday’s candle, I suspect we’re heading towards another leg lower on the daily chart to at least July high / February low. Furthermore, the rally from the July low to the Monday’s high came in three waves, suggests it cannot be an impulsive move higher and that the market remains within a correction lower from the June high.

From here, bears could consider fading into moves towards Monday’s low ad target the lows around 93.50, with a break above Tuesdays high invalidating the bearish bias on the daily chart.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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