AUD/JPY Intra-day Scalp- Wedge Formation Tightening

The AUD/JPY pair continues to consolidate within a descending wedge formation that dates back to April 27th. A lack of conviction in today's rally sees a likely reversal of this swing in risk sentiment, with the pair expected to continue to bottleneck into the current wedge formation.

The AUD/JPY pair continues to consolidate within a descending wedge formation that dates back to April 27th. With the risk appetite returning to markets today, demand for the high yielding aussie picked up while the safe-haven yen eased. However a lack of conviction in the rally sees a likely reversal of this swing in risk sentiment, with the pair expected to continue to bottleneck into the current wedge formation. Daily relative strength also suggests the pair lacks proper directional flows to upset this trade on an intra-day basis.

Scalps to the downside are favored with targets eyed at 86.50, the 86-figure, and 85.50. With an average true range of 23, profit targets per scalp should be between 10-15 pips depending on entry. Preferred shorts are taken from the 87-handle, the 23.6% Fibonacci extension taken from the April 27th and May 11th crests at 86.80 and the 86-figure. A test of lower bound trendline could see topside potential targets at the 86-handle.

Key Thresholds

A break above the upper bound trendline sees the scalp on hold until further confirmation of either a breach of the 87.50 level or a move back into the formation below 87. Likewise, a break below the 61.8% Fibonacci extension at 84.80 negates the validity of the scalp, noting that such an occurrence would likely see a test of the 84-handle. The timeframe for said scalp is open-ended until a break of the current formation is confirmed.

Indicator	Timeframe	Level
Fibonacci Extension – 23.6%	1 hour	86.79
Fibonacci Extension – 38.2%	1 hour	86.03
Fibonacci Extension – 50.0%	1 hour	85.40
10-SMA	Daily	86.96
20-SMA	Daily	86.19
50-SMA	Daily	84.50
RSI	Daily	54.50
Resistance 1 Target	1 hour	87.00
Resistance 2 Target	1 hour	86.80
Topside Limit	1 hour	87.50
Support 1 Target	1 hour	86.00
Support 2 Target	1 hour	85.60
Bottom Limit	1 hour	84.80
Average True Range	Daily	23.08

Related Economic Data Releases

While there will be no economic data out of Australia overnight, the Japanese docket risks upsetting this particular scalp setup with the April trade balance figures on tap. Consensus estimates call for a print of -695.9B (yen), weighed on by a 12.7% slump in exports. With most of the weakness attributed to the catastrophes that overtook the isle-nation back in March, investors will be lending a keen eye to just how severe the losses will be for Japan. A weaker than expected print may see an upside break of the wedge formation, thereby nullifying this trade. Likewise if the data proves to be stronger than expected, the AUD/JPY pair could see an accelerated downside break, with a dip below 84.80 eyeing the figure. Australian data will likely not play a significant role in this pair until tomorrow night when the 1Q construction data is released at 21:30 GMT.

Japanese Upcoming Events

Date	GMT	Importance	Release	Expected	Prior
5/24	23:50	MEDIUM	Adjusted Merchandise Trade Balance (Yen) (APR)	-695.9B	96.3B
5/24	23:50	MEDIUM	Merchandise Trade Balance Total (Yen) (APR)	-703.7B	196.5B
5/24	23:50	LOW	Merchandise Trade Exports (YoY) (APR)	-12.7	-2.2
5/24	23:50	LOW	Merchandise Trade Imports (YoY) (APR)	12.8	11.9

Australian Upcoming Events

Date	GMT	Importance	Release	Expected	Prior
5/25	20:00	LOW	Conference Board Leading Index (MAR)	-	0.6%
5/25	20:30	LOW	Westpac Leading Index (MoM) (MAR)	-	0.4%
5/25	21:30	MEDIUM	Construction Work Done (1Q)	1.4%	0.8%
5/26	0:30	MEDIUM	CBAHIA House Affordability (1Q)	-	53.5
5/26	1:30	MEDIUM	Private Capital Expenditure (1Q)	2.7%	1.3%

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Written by Michael Boutros, Currency Analyst for DailyFX.com

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