AUD/JPY, AUD/USD drop like a tonne of BRICS

President-elect Trump upped the ante with his own tariff threats, this time quoting a hefty 100% tariff on BRIC countries if they fail to commit to not creating a new currency to dethrone the US dollar. BRICS countries include Brazil, Russia, India, China, and South Africa. While the topic of BRICS creating a new currency is not new, this is the first real action the US has taken to stifle it. It certainly paves the way for a turbulent 2025, something I warned about last week via price action clues on AUD/JPY.

The US dollar index snapped a four-day losing streak, which saw EUR/USD come close to retesting its 2023 low before recovering to 1.05. While Europe is not part of BRICS, it has many economic ties with countries within it, and yesterday’s threats served as a reminder to Europe that high tariffs could be a real prospect and not just a bad dream. This helped EUR/USD earn its place as Monday’s weakest FX major.

Commodity currencies were also bruised, which saw AUD/USD retest its February low and print a bearish engulfing day. Only the yen held up to USD strength as it sucked in safe-haven flows and renewed bets of a 25bp BOJ hike this month.

Australia’s data was mostly disappointed on Tuesday, and even the strong retail sales figure could be short lived. Retail sales delivered a punchy 0.6% rise in October, although this is likely due to retailers bringing forward Black Friday sales and parting consumers from their Christmas-spending money, which leaves December’s figures vulnerable for disappointment. Job ads were -1.3% lower according to ANZ, down from 0.7% previously. Company profits fell a further -4.6% in Q3, down from -6.8% in Q2 and missing the low consensus of 0.8% q/q. Private housing approvals also contracted by -5.2% in October, compared with a 2.2% rise in September.

This sets the stage for a set of soft Australian GDP figures tomorrow.

Economic events in focus (AEDT)

10:50 – JP monetary base
14:35 – JP 10-year JGB auction
18:30 – CH CPI
02:00 – US JOLTS job openings
04:35 – US FOMC Kugler speaks

AUD/USD technical analysis:

In yesterday’s outlook report, I noted that range-trading strategies might be preferred for AUD/USD, given the plethora of resistance levels around the October low alongside demand around the February low. Risks of a downside break appear to have increased. This would be in line with its daily trend, which met resistance at the 20-day EMA twice last week and yesterday. A break of last week’s low brings the 64c handle and the August low into focus.

The 1-hour chart shows a strong rebound from the weekly S1 pivot (0.6446) and February low. Yet with the 200-day MA (0.6498) and weekly pivot point (0.6497) overhead and the 1-hour RSI (2) overbought, today’s preference is to fade into rallies towards resistance and target Monday’s low initially. A break beneath would bring the lower targets into focus.

AUD/JPY technical analysis:

The FX barometer of risk suffered a near 18% decline from the July high to the August low. A three-wave countertrend rally (which was more of a grind than a rally) ensued before stalling beneath the 2014 high. Momentum has now realigned with the trend from the July high, and I suspect further losses are more likely than not over the coming weeks or months.

However, the daily chart shows that Monday’s low held above a weekly VPOC (volume point of control) and a small bullish divergence has formed on the daily RSI (2) in the oversold zone. This is more of a warning for bears not to jump late into a move as opposed to seeking a long setup. But should we be treated to a bounce, I suspect bears could be waiting to rejoin the party and seek a break of the September low.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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