The Barclay Research Team provides key technical levels to trade the AUD/JPY cross in the week ahead, with the bias leaning towards the downside on the back of the US-China trade concerns.

Key Quotes:

“Trade for the week ahead: Short AUDJPY.

We recommend being short AUDJPY (spot ref: 81.03).

Targeting 78 with a stop loss of 83.138 (18-month 50% retracement) after the well-capped rebound last week.

Sino-US trade war concerns could weigh on a high-beta currency such as AUD. particularly given its late-cycle domestic dynamics and expected moderation in Australia’s terms of trade.

On the other hand. JPY could benefit from safe-haven flows and domestic political scandals point to a risk of further appreciation.”

 

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USD/JPY dipped below 105.00 on Friday.
Risk reversals remain flatlined.

The USD/JPY pair fell below 105.00 on Friday, but the move has not boosted the demand for JPY calls (buy yen), the risk reversals indicate.

The one-month 25 delta risk reversals (JPY!MRR) are unchanged at -1.525 (being paid at 1.525 JPY calls) for the fourth straight session. The stagnant implied volatility premium for JPY calls could be an indication the investors do not see a deeper drop in the USD/JPY pair.

JPY1MRR

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The Aussie is lifting in early Monday trading as risk appetite tests the deeper waters.
A lack of macro events leaves the pair exposed to swings in market sentiment.

The AUD/JPY is lifting in the early week Asia session, currently in play just over the 81.00 handle.

Monday is a quiet showing on the macro calendar for both the Aussie and the Yen, and JPY traders are going to be looking ahead to the Tokyo Consumer Price Index at 23:30 GMT on Thursday. Tokyo acts as a bellwether for Japan’s national CPI figures, and a positive headline for Tokyo Core CPI, currently forecast at 0.9%, could imply the Bank of Japan’s (BoJ) drastic easing measures are having an effect, though the Yen’s strength lately will no doubt eat away at Japan’s inflationary attempts.

AUD/JPY Levels to watch

The pair has bottomed out on Daily candles, and a return trip higher is going to have to push through support-turned-resistance at 81.70 before challenging the last swing high’s resistance at 82.60, while a push lower will see major support at the nearest low of 80.50, with very thin support hanging on at the 50.0 Fibo level near 80.80.

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Risk reversals rise, indicating increased demand for XAU/USD (gold) calls.

The broad-based USD weakness post-Fed lifted the yellow metal to a five-week high of $1,350 last week.

The surge in prices has boosted demand for the XAU/USD calls (buy gold), the risk reversals indicate. For instance, the one-month 25 delta risk reversals (XAU1MRR) are being paid at 0.6 XAU calls vs. 0.5 XAU puts on March 21.

The rise in the implied volatility premium for XAU calls indicates the investors are seeking hedges against further upside in gold prices.

XAU1MRR 

 

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It is “incredibly probable” that the UK will reach a final deal with the EU, the Brexit secretary, David Davis, said while speaking on BBC One’s Andrew Marr Show. 

Key Quotes

“The progress made in talks with Brussels meant it was now “incredibly probable, very, very highly probable” that there would be a final deal”

“You can never stop making arrangements for a potential no-deal scenario because that’s one of the things that guarantees the deal”

“You don’t expect your house to burn down, it’s less than a one in 100,000 chance, but you have house insurance anyway”

 

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The South Korean trade minister, Kim Hyun-chong, has hit the wires confirming that South Korea has secured permanent exemptions from the US steel and aluminum tariffs, and the deal is being called Korus.

Key highlights:

The bilateral trade agreement, Korus, has been agreed to between the two countries, and South Korea has agreed to only sell 2.68 tonnes of steel into the US annually, which is roughly 70% of the 2015-2017 total. The US has also agreed to postpone a tariff lift on South Korean pickup trucks until 2041, which was previously set to expire in 2021.

South Korea’s Hyun-chong has noted that the US tariffs are likely to continue representing broader risks, and South Korea is focusing on expanding their exports market. The full details of Korus are expected to be released sometime this week.

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Risk aversion could hurt GBP and vice versa.
Charts favor further upside in Sterling.

GBP/USD jumped to 1.4218 last week – the highest level since Feb. 2 on the back of a brexit transitional agreement and strong UK data.

However, cable’s jets were cooled by fears of US-China trade war and the resulting risk aversion in the stock markets. The spot ticked higher in Asia and was last seen trading at 1.4164 as the S&P 500 futures jumped 0.5 percent on reports the US and China are working to avert a full-blown trade war.

Focus on stocks

The relief rally in the stocks will likely gather pace if both nations soften their stance on trade. In such a scenario, the GBP/USD pair could revisit and may possibly break above the last week’s high of 1.4218. Meanwhile, risk aversion could yield a pullback to 10-day moving average located at 1.4035. It is worth noting that British Pound still ranks last on the list of the anti-risk currencies, courtesy of UK’s current account deficit.

Technical bias remains bullish

A sequence of higher highs and lower highs, upward sloping (biased bullish) 5-day MA, 10-day MA and the bullish RSI (above 50.00 and trending) indicates scope for a rally to 1.4278 (Feb. 2 high). A close higher would allow a sustained rally to 1.4345 (recent high). On the downside, breach of support at 1.4107 (5-day MA) could yield a pullback to 1.4036 (10-day MA) and 1.40 (psychological support).

 

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Heading into a new week, analysts at JP Morgan offer their outlook on the major currencies, in light of a relatively data-thin macro calendar.

Key Quotes:

“Portfolio remains light on risk.

Slight defensive tilt to navigate protectionism-related uncertainty

Maintain a modest USD short vs. other reserve currencies like CHF.

Keep selective high beta shorts expressed via AUD and NZD versus the Euro.

Oil is re-emerging on macro radars as a potential petro-FX catalyst, stay tactically long NOK/SEK and short EUR/NOK.

CAD is on the watch list as a potential buy given the better tone to NAFTA negotiations.

Technical Strategy:

The range bias for the USD indices persists following this week’s failure at key resistance.

The breakdown in USD/JPY reasserts the medium-term downtrend; the backdrop for Antipodeans continues to deteriorate.

Stay long:

NOK/SEK, USD/HUF, USD/CZK, USD/NOK, JPY/KRW, USD/KRW, USD/CAD and USD/ILS & short PLN/HUF, GBP/CHF, AUD/CHF, USD/CHF and NDZ/USD.”

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A shortened trading week with Easter approaching sees little macro data of note.
The Euro is testing higher to kick off the new week despite ongoing trade war fears.

The EUR/USD is trading close to last week’s high of 1.2388, currently testing the water around 1.2370 heading into the new week’s first European session.

The macro calendar is a thin showing this week, and most traders will be focused on the US final GDP figures due on Wednesday at 12:30 GMT. Monday represents an air-filled showing, and the EUR/USD pair is heading into the new week exposed to swings in market sentiment on trade war fears and Brexit concerns.

Headlines continue to be tariff-focused, and despite some potential glimmers of hope for an uneventful conclusion to the current round of trade war fears, market sentiment can expect to continue to face headwinds as traders stick close to safe-haven assets like the Yen. Brexit concerns have also quieted considerably following last week’s announcement that the European Union and the UK have a plan, or at least a plan to have a plan, post-Brexit.

EUR/USD Levels to watch

Daily candle3s are continuing to consolidate around the 1.2300 major level, and pushes in either direction are having less of an effect and the pair finds itself in a sideways triangle. A break in either direction could establish a new medium-term trend, and the barriers are hanging at 1.2410 and 1.2240, with further resistance at 1.2445 and the major 1.2500 psychological level, while support sits at February’s swing lows of 1.2205 and 1.2155.

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Reports of US/China trade dialogue fail to lift the greenback.
US budget deficit concerns could hurt USD.

The reports of US-China trade talks have put a bid under the S&P 500 futures, but so far, has not had any positive impact on the greenback.

The dollar index (DXY), which tracks the value of the greenback against majors, is trading in a sideways manner around 89.40. Also, the 10-year US treasury yield is flatlined around 2.83 percent.

US budget deficit woes could cap gains in the greenback

The American dollar may rise if the US and/or China soften their stance on trade, however, the gains will likely be short-lived as the $1.3 billion spending bill approved by Congress, and signed by Trump could bring the budget deficit/twin deficit fears to the forefront.

Dollar Index Technical Levels

A break above 89.56 (March 14 low) would expose resistance at 89.78 (5-day MA) and 90.00 (psychological hurdle). On the downside, breach of support at 89.40 (March 7 low) could yield a sell-off to 89.02 (Feb. 5 low) and 88.72 (Jan. 26 low).

 

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