Jump to content

AUD/JPY Forecast - Bullish on Monetary Policy Disparity: Top Trading Opportunities

Recommended Posts

AUD/JPY Forecast - Bullish on Monetary Policy Disparity: Top Trading  Opportunities

Jul 7, 2022 | DailyFX
Daniel McCarthy, Strategist

AUD/JPY made a 7-year high in early June at 96.88 then pulled back to the just under 92.00 before settling back into a range. Broad Yen weakness has been seen across the board with USD/JPY hitting a 24-year peak recently.

The monetary policy of Japan’s Ministry of Finance (MoF), and by extension the Bank of Japan (BoJ), is going the opposite direction of other global central banks, with the exception of the People’s Bank of China. The BoJ recently committed to extending their yield curve control program (YCC) and are close to holding 50% of all Japanese government bonds (JGBs) on issue.

The RBA on other hand has recently committed to a more aggressive tightening path for monetary policy than previously anticipated by the market. It hiked by more than the consensus for the May and June meetings and there is little to say that this won’t happen again.

Second quarter Australian CPI will be released 27th July. It was first quarter CPI coming in at 5.1% year-on-year that prompted the RBA to lift rates. First quarter CPI was 2.1% quarter-on-quarter. The 2021 Q2 CPI was 0.8% and this will be dropping off the annual number this time around.

Observing the energy and agricultural markets over the second quarter, it is shaping up to be a print larger than 0.8%. The surge in futures prices of these commodities occurred at the end of March when Russia invaded Ukraine.

The flow through effect into the real economy was only felt after a month or so after those dramatic price rises. Certainly, anyone living in Australia would have been shocked in the supermarket and at the petrol bowser through the second quarter.

This is the period that the Australian Bureau of Statistics (ABS) will be measuring consumer price changes. The market may not be fully cognizant of the probability that the July CPI print could be much larger than the RBA would like.

RBA Governor Philip Lowe has made it clear that the bank is ready to act decisively if warranted. A jumbo hike in August, on top of the rises in May, June and July, should not be ruled out.

The Australian fundamental backdrop remains strong with low unemployment, solid growth, positive international trade and debt at relatively tame levels, publicly and privately. The market is not focused on that for now, monetary policy appears to be in the driver’s seat. The aggressive hawkish stance from the Federal Reserve has seen the US Dollar rally and AUD/USD has been pummeled in the melee.

AUD/JPY on the other hand, could have some favorable tailwinds about to pick up.

Buy near 93.25, stop loss at 91.25 and take profit at 96.45. Additionally, if Japan changes monetary policy or actively intervenes in the FX market, exit the trade. Developments in China should also be monitored for macro implications and could also trigger an exit from the trade.


AUD/JPY Forecast - Bullish on Monetary Policy Disparity: Top Trading Opportunities

Source: TradingView

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 23/03/23 08:10
  • Posts

    • #GBPCAD: Pullback From Key LevelGBPCAD reached a major horizontal resistance.The price has nicely reacted to that, forming a bearish engulfing candle on 4H time frame.I expect a retracement from the underlined structure.Goals: 1.68 / 1.677
    • #EURUSD: Important Breakout 🇪🇺🇺🇸   Bulls push 🟢EURUSD heavily after yesterday's Interest Rate Decision and FOMC. The price has successfully broken and closed above a solid horizontal supply cluster.   The next solid resistance that I see is 1.099 - 1.103 area. Probabilities will be high that it is the next goal for buyers.   For those, who missed entries, I strictly recommend waiting for a pullback first. I will post an update later on. For Additional confirmation use: Xmaster Formula MT4 Indicator
    • The Nasdaq’s gains are starkly contrasted with relatively weak performances this year from US index peers the S&P 500 and Dow Jones Industrial Average (Wall Street 30), suggesting some sector rotation has occurred. Source: Bloomberg   Indices Nasdaq-100 S&P 500 Dow Jones Industrial Average Nasdaq Technical analysis  Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Monday 20 March 2023  The Nasdaq 100 index, after being out of favour in 2022, has managed to produce double digit price gains within the first quarter of 2023. These gains are starkly contrasted with relatively weak performances this year from US index peers the S&P 500 and Dow Jones Industrial Average (Wall Street 30). The failure of smaller financial counters Silvergate, First Republic and Silicon Valley Banks, has sparked fears around a mini banking crisis prompting weakness in larger banking peers which make up some of the S&P 500 and Dow Jones Industrial index constituents. In turn there is a suggestion that we are now seeing some sector rotation by investors back into technology stocks found within the Nasdaq 100 index. Relative strength comparison: Nasdaq 100 vs S&P 500   Source: IG The chart above shows a ratio comparison of the Nasdaq 100 (numerator) and the S&P500 (denominator) from the beginning of 2022 up until now (20 March 2023). The red trend line (arrow) highlights the downtrend in this ratio which reflects a significant underperformance of the Nasdaq against the S&P500 in 2022. The blue arrow highlights the upward trend of this ratio which began in early 2023. The upward trend now prevalent, highlights the Nasdaq 100’s outperformance of the S&P 500. Relative strength comparison: Nasdaq 100 vs Dow Jones Industrial Average   Source: IG Similarly, to our previous chart (Nasdaq100 / SP500) the above chart of the Nasdaq 100 (numerator) and Dow Jones Industrial Average (denominator) ratio highlights these same trends, i.e. in 2022 Nasdaq 100 consistently underperformed the Dow, while in 2023 that trend appears to have reversed. Year to date index moves compared   Source: IG Albeit from a lower base, the Nasdaq 100 has outperformed its benchmark peers the S&P500 and Dow Jones Industrial Average significantly in 2023. Nasdaq 100 – Technical analysis Source: IG As highlighted in a previous article, the 50-day simple moving average (50MA) (green line) has recently crossed above the 200-day simple moving average (200MA) (blue line). This moving average crossover is commonly referred to as the ‘golden cross’ in technical analysis terms. The suggestion is that it marks the beginning of a new longer-term uptrend in a market, in this case the Nasdaq 100. While we have seen some short-term gains to follow in the index, the Nasdaq 100 does now also trade in overbought territory. The overbought signal suggests that trend followers looking for long entry might be afforded an opportunity to do so through either a near term price pullback or sideways consolidation.   Source: IG The price break above resistance at 12350, now sees this level as possible support, should a pullback ensue. Traders supporting the long-term uptrend might look for long entry on a pullback to either this level or trend line (solid black line) support. Preferably a pullback would need to end with a bullish reversal (candle) pattern. In this scenario, 12900 and 13190 provide initial resistance targets, while a close below the reversal low might be used as a stop loss indication for the trade.
  • Create New...