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Substantial 2.5% AUDJPY Bounce, Erases Four-Day Loss

FOREX
  • Firmer global risk sentiment thanks to further optimism out of China as well as relief in NatGas prices is continuing to underpin the Australian Dollar on Wednesday, with the most recent pressure on the Japanese yen prompting AUDJPY to extend gains to over 2.5% on the session.
  • AUDJPY briefly rose above 90.50, entirely reversing a 3.5% selloff from the December 28th close. Further strength may turn the focus to the pre Bank of Japan levels around the 92 handle.
  • Additionally, While USDJPY had initially broken an important technical support and bear trigger at 130.58 on Tuesday, the immediate reversal higher will be of concern for bears and key short-term resistance that has been defined at 134.50, the Dec 28 high, will be in focus.
  • JPY volatility comes 2 weeks out from the Jan18 BoJ decision, ahead of which vol contracts capturing the decision are rallying sharply. AUD/JPY 2w implied has now topped 17 points, making for the sharpest rally since June last year.
  • As noted earlier, Chinese bureaucrats are discussing plans to resume some imports of Australian coal after a more than two-year ban as relations between the nations improve. The news continues to stoke the AUD rebound, the clear outperformer across G10.
  • In Australia, both CPI and retail sales are due next Wednesday, placing the focus on Friday’s US employment report as a key driver for overall sentiment.
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