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Australian Dollar Technical Analysis: AUD/JPY, AUD/USD Rates Outlook

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Australian Dollar Outlook:

  • AUD/JPY rates have hit their highest level since June 2015, keeping intact a ‘buy the dip’ mindset.
  • AUD/USD rates have been weaker in recent days, but today’s rebound at former resistance turned support suggest that more gains are ahead.
  • According to the IG Client Sentiment Index, AUD/JPY has a bearish bias while AUD/USD has a neutral bias.

Aussie Still Well-Positioned

Improving risk appetite in global financial markets, if only modestly, is helping the Australian Dollar perk up after several days of relatively weaker trading results. Base metal prices are back on the rise, and with measures of volatility subsiding, US equity markets have started to climb from their monthly lows despite weaker results from some notable tech companies. And with the Reserve Bank of Australia not yet having raised rates – but are expected to do so quite rapidly once federal elections pass next month – the best days may still be ahead for the Australian Dollar.

AUD/USD RATE TECHNICAL ANALYSIS: DAILY CHART (February 2021 to April 2022) (CHART 1)

Australian Dollar Technical Analysis: AUD/JPY, AUD/USD Rates Outlook

AUD/USD rates had fallen over -4% from their monthly high to their low this week prior to the rebound over the past two days. But after returning to former resistance in two multi-month technical patterns – the descending parallel channel in place since the end of June 2021 and the descending trendline from the February 2021 and May 2021 highs – AUD/USD rates have rebounded meaningfully. With former resistance now support, and AUD/USD rates back above their daily 21-EMA, it stands to reason that the April low has been found. The first target to the upside is the 76.4% Fibonacci retracement of the 2018 high/2020 low range at 0.7502.

IG Client Sentiment Index: AUD/USD RATE Forecast (April 20, 2022) (Chart 2)

Australian Dollar Technical Analysis: AUD/JPY, AUD/USD Rates Outlook

AUD/USD: Retail trader data shows 55.17% of traders are net-long with the ratio of traders long to short at 1.23 to 1. The number of traders net-long is 1.85% lower than yesterday and 7.61% higher from last week, while the number of traders net-short is 3.98% higher than yesterday and 7.91% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

AUD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (December 2020 to April 2022) (CHART 3)

Australian Dollar Technical Analysis: AUD/JPY, AUD/USD Rates Outlook

Unlike their AUD/USD counterpart, AUD/JPY rates have not experienced a setback in April thanks to the ongoing weakness seen by the Japanese Yen. Hitting a fresh 2022 high and their highest level since June 2015, AUD/JPY rates retain a bullish technical posture that warrants a ‘buy the dip’ mentality for the foreseeable future. The pair remains above its daily 5-, 8-, 13-, and 21-EMA envelope, which is in full bullish sequential order. Daily MACD is above its signal line and is on the verge of issuing a fresh bullish crossover, while daily Slow Stochastics have reentered overbought territory. The next significant level higher is the May 2015 high at 97.03.

IG Client Sentiment Index: AUD/JPY Rate Forecast (April 20, 2022) (Chart 4)

Australian Dollar Technical Analysis: AUD/JPY, AUD/USD Rates Outlook

AUD/JPY: Retail trader data shows 33.79% of traders are net-long with the ratio of traders short to long at 1.96 to 1. The number of traders net-long is 19.88% higher than yesterday and 39.16% higher from last week, while the number of traders net-short is unchanged than yesterday and 3.94% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/JPY price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Strategist