AUD/JPY: Plenty of reasons to stay bearish, but a drift to the upside in play, target 50% fibo confluence zone

• AUD/JPY, the markets risk barometer fell over a cliff on the RBA and was momentarily weighed up by a sharp spike to the downside in USD/JPY.
• AUD/JPY is currently trading at 78.16 within a 20 pip range in early Asia, down from yesterday's session highs of 79.65.

AUD/JPY is a complex mix of hard facts and risk sentiment. The hard fact came from last nights dovish capitulation that have renewed downside risks for AUD in general.

The Reserve Bank of Australia's (RBA) Governor, Philip Lowe, appeared for a speech at the National Press Club in Sydney yesterday whereby his comments were perceived by the market as dovish, and to the contrary of the RBA recent statement that left the language broadly the same with respect to "gradual", signalling to the market that the next move would be up. 

"The RBA Governor speech to the National Press Club revealed a more neutral stance than that suggested in yesterday's RBA Board policy statement where "... there are scenarios where the next move in the cash rate is up and other scenarios where it is down. Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced","

analysts at TD Securities explained. 

The analysts at TDS added, "FX investors looking to fade the prevailing risk-on consensus could look to short-dated AUDJPY downside structures to position for a potential pullback in confidence. Historically, AUDJPY has the highest correlation to the S&P among G10 crosses."

AUD/JPY levels

AUD/JPY's slide has stalled ahead of a key support level of prior lows and the confluence of the 23.6% retracement at 77.18 with the overnight session lows meeting the 4hr 200 SMA at 78.05. Daily RSI has turned sharply lower and daily MACD has also turned negative. A shift to the downside in risk sentiment opens the case for a renewed effort towards the 61.8% fibo located at the start of the year's double bottom lows around 74 the figure. However, AUD could attract some demand on profit taking which may make for a bearish discount in the cross, especially should USD/JPY get over the line with a daily close on the 110 handle. A 50% retracement of the recent move is located at 78.85 and has cofluence with the 200-hr SMA.