AUD/JPY Extend Overnight Gains – Trading Ascending Triangle Setup!
Arslan Butt • 3 min read
During Wednesday’s Asian trading session, the AUD/JPY currency pair succeeded in extending its overnight gaining streak, drawing some sharp bids around the mid-77.00 level, mainly due to the prevalent risk-on market sentiment, which tends to underpin the Australian dollar, which is perceived as risky, and contributing to the gains in the currency pair. The market trading sentiment was supported by optimism over a potential vaccine for the highly infectious coronavirus. Apart from this, the market trading sentiment was further bolstered by the news suggesting that the US house members are nearing an agreement on the much-awaited coronavirus (COVID-19) aid package, which ultimately pushed the Wall Street benchmark to a record high.
This, in turn, provided an additional boost to the currency pair, and the declines in the safe-haven Japanese yen, triggered by the upbeat market sentiment, have also played a major role in supporting the currency pair. On the contrary, the long-lasting coronavirus woes and lingering uncertainty over the Brexit trade talks keep challenging the market risk-on sentiment, which has become a key factor that has kept a lid on any additional gains in the currency pair. Meanwhile, the mixed China inflation data could also be considered a bearish factor that has been capping the gains in the currency pair. The AUD/JPY currency pair is currently trading at 77.61 and consolidating in the range between 77.11 and 77.64.
Despite the lingering doubts over the global economic recovery from intensifying coronavirus (COVID-19) woes in the US and Europe, the market trading sentiment has remained supported by the optimism over potential vaccines for the highly contagious coronavirus disease. However, the hopes of potential vaccines were further boosted after the first patients in the UK were inoculated with BNT162b2, the COVID-19 vaccine co-developed Pfizer (NYSE: PFE) and BioNTech SE (F:22UAy). However, the optimism over the UK’s vaccination program and hopes of legal approvals for COVID-19 vaccines in the other developed countries are keeping the market bullish, which tends to underpin the Australian dollar, which is considered risky, and contributes to the gains in the currency pair .
As a result, the S&P 500 futures managed to extend its positive momentum of the previous session, hitting records highs throughout the Asian session, which undermined the demand for the safe-haven Japanese yen, and extended further support for the currency pair. In addition to this, the sentiment surrounding the currency pair was further improved after House Speaker Nancy Pelosi said that good progress had been made on the stimulus discussions. Meanwhile, US Treasury Secretary Steve Mnuchin is offering a larger amount than the previously suggested $ 908 billion for the stimulus package.
On the contrary, the intensifying coronavirus woes in the US and Europe, and stricter lockdown restrictions in Europe, keep challenging the upbeat market sentiment. This has become the key factor that has kept a lid on any additional currency gains for the pair, which were also capped by the lingering uncertainty over the Brexit deal and the intensified China-US tussle over the US sanctions on Chinese diplomats and the arrest of the Hong Kong opposition party members by police.
Meanwhile, the mixed China inflation data could also be considered as a bearish factor that has been capping the gains in the currency pair. On the data front, China’s Consumer Price Index (CPI) figures for November fell below the previous 0.5% and the 0.0% forecast, to -0.5%. However, the Producer Price Index (PPI) grew from the previous readout of -2.1% and the projected -1.8%, to -1.5% YoY.
Moving ahead, the market traders will keep their eyes on the US stimulus headlines and vaccine news. In the meantime, the updates surrounding the Brexit trade talks and the Sino-US tussle will not lose their significance on the day.
Daily Support and Resistance
Pivot Point 77.21
The AUD/JPY pair has violated the ascending triangle pattern at the 77.50 level, opening further room for buying until the next resistance area of 78.24. On the 4-hour timeframe, the AUD/JPY pair has violated the ascending triangle pattern at 77.50, which is opening additional room for buying in the pair. At the moment, 77.50 will be working as a support, and below this, the selling trend in the AUD/JPY pair could be extended until the 77.25 level. The MACD is also suggesting a bullish sentiment; therefore, we have entered the long-term buy signal in the AUD/JPY pair, to capture 80 pips. Stay tuned for further updates!