Ones to Watch: AUDJPY

This pair is like the ultimate risk barometer right now: the Aussie has an extremely high beta to overall market risk while the yen is a traditional safe haven. Thus, in periods of risk aversion this pair tends to fall and it tends to rise when risk is “on”. As signs that stabilisation in the Eurozone develop now that the ECB has stepped in to pump the European financial system with liquidity, combined with signs that global growth may have reached its nadir at the end of 2011, then the ground is fertile for this FX cross.

AUDJPY has lagged behind gains in other Aussie crosses in recent months reflecting concerns in the market and the continued unease with the European sovereign crisis fuelling demand for yen. However, we are approaching a key resistance level at 82.70/80, which has capped gains since September 2011. Above here we could see a move back towards the 85.00 highs.

The technical indicators are also pointing to further potential gains for the AUDJPY. The ascending triangle pattern you can see on the chart below and the attempt to break out on the top-side suggests a continuation of the uptrend that started from the December low. This level is also a key resistance level that dates back to August - the next high from here is the 85.00-86.00 zone from last summer. Added to that we are getting confirmation that the uptrend remains in place from the RSI - a leading indicator, which suggests momentum is still higher. Thus, this could be a good entry point for a long position, with a target of 85.00 first and then 87.00.

However, this pair can be volatile and we are not out of the woods yet when it comes to Greece and Europe. Thus, a stop at 82.00 would be a wise idea and gives you a good risk reward ratio of 2.5 (risking 80 pips for a potential gain of 200 pips).

AUDJPY daily chart with RSI