2025 could be one heck of a ride if bearish AUD/JPY clues are correct

While AUD/JPY has already fallen by around 9% from its year-to-date high, it remains firmly in the top quartile of a sideways range that began in the mid-nineties. Focusing on this millennium, the cross has seen two significant tops in 2007 and 2013, both of which resulted in declines of over 40%, admittedly at different rates.

I am now questioning whether we’re on the cusp of a third significant top of the century, based on price action this year.

While prices reached a 33-year high in July, it was short-lived. Since then, prices tumbled around 18% before recouping some of those losses. Yet bulls are making hard work of gains and have only recouped around half of those losses over the past three and a half months.

Furthermore, the open-to-close range of the prior three months has been a mere ¥2 between 98 and 100. While there has been volatility either side of the open-to-close range, it has diminished each month. As volatility is bipolar, we could be nearing a phase of increased volatility.

Given we saw an aggressive bearish outside month in July followed by relatively weak gains over the next three months, I cannot help but compare it to the 1-2-3 move lower in 2007. And as that went on to see the market drop 48% due to the global financial crisis (GFC), the pattern has certainly piqued my interest.

But even if the market were to just drop 20% from its YTD high, it could still fall a further 1300 pips from current levels. And with Trump back at the helm next year, nothing is off the table in terms of market direction or levels of incoming volatility.

Note that the weekly chart is breaking out of a tight range and show momentum trying to break away from its 200-week SMA to the downside. Even a mere 61.8% projection could take AUD/JPY back to the August lows, whereas a 100% projection would see prices break beneath the 2023 low and land around 82.

And if AUD/JPY moves to such levels quickly enough, chances are it will mark a broad round of risk-off sentiment. I am not saying this is going to happen, but simply saying what I see on the charts. And for now, the charts suggest we could be on the cusp of a lot of downside for the classic barometer of risk.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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