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FOREX: AUDJPY Extends Three-Week Slide to 5%

FOREX
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  • The latest weakness for stock indices amid stagflationary concerns in the US and the associated adjustment higher for the VIX have provided a significant headwind for the higher beta AUD. The chart standing out here is AUDJPY, which has now fallen 5% from the February highs in just three weeks.
  • Goldman Sachs recently pointed out that any downside surprises for key US data points, such as the ISM survey on Monday, should provide further downside in USD/JPY, but they think being short AUD/JPY would be the better trade as it typically sees the greatest returns in a backdrop of lower equities and lower yields.
  • Furthermore, JP Morgan have stated that JPY continues to stand out as the most obvious beneficiary from softening US data and potential new tariffs. They have expanded JPY exposure by initiating longs vs basket of USD & NZD in cash. They highlight that JPY has outperformed throughout this cycle during periods of softening growth & falling yields, suggesting that JPY longs are the cleanest expression to capitalise on the current market environment.
  • For AUDJPY, the 50-day EMA has provided excellent resistance, with moving average indicators highlighting the bearish theme. Downside momentum picked up on a break of trendline support (drawn from the Aug 06 low) last week. Price action continues to signal scope for a move towards a key support level around 90.20, a further 2.6% from current spot levels.
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  • The latest weakness for stock indices amid stagflationary concerns in the US and the associated adjustment higher for the VIX have provided a significant headwind for the higher beta AUD. The chart standing out here is AUDJPY, which has now fallen 5% from the February highs in just three weeks.
  • Goldman Sachs recently pointed out that any downside surprises for key US data points, such as the ISM survey on Monday, should provide further downside in USD/JPY, but they think being short AUD/JPY would be the better trade as it typically sees the greatest returns in a backdrop of lower equities and lower yields.
  • Furthermore, JP Morgan have stated that JPY continues to stand out as the most obvious beneficiary from softening US data and potential new tariffs. They have expanded JPY exposure by initiating longs vs basket of USD & NZD in cash. They highlight that JPY has outperformed throughout this cycle during periods of softening growth & falling yields, suggesting that JPY longs are the cleanest expression to capitalise on the current market environment.
  • For AUDJPY, the 50-day EMA has provided excellent resistance, with moving average indicators highlighting the bearish theme. Downside momentum picked up on a break of trendline support (drawn from the Aug 06 low) last week. Price action continues to signal scope for a move towards a key support level around 90.20, a further 2.6% from current spot levels.
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