With AUD/JPY being a barometer of risk for FX, it’s been no major surprise to see the cross slump alongside investor sentiment as the Turkish crisis unfolded. But with it testing the lower bound of a 5-month range, this could be the beginning of the next leg lower.
We highlighted the bearish structure on the weekly chart back in June along with our bias for an eventual downside break. Whilst we retain this view, this week’s ‘break’ lower currently lacks conviction, although we see evidence that the monthly chart could be about to break out of compression.
The monthly chart exhibits a series of lower swing highs and lows as part of a bearish trend and, more recently, five Doji candles formed below the 200-month average to show compression was underway. Whilst we’re only halfway through the month, bearish momentum appears to be returning as it tries to realign itself with the dominant bearish trend. Considering how long-term this chart is, this leaves the potential for some large moves to the downside if this turns out to be the case.
Zooming into the daily chart we can see that bearish momentum slammed prices towards 80.50 before gapping below support. Currently compressing near the range low with a small inside day (which has the narrowest range over four candles), we await volatility to return and for bears to push it lower. Still, its hesitancy to break convincingly out of range whilst it resides near the lower Keltner raises the risk of a bear-trap over the near-term. This makes the mother candle of the IDNR4 critical as a break above it would likely see prices snap back into the range whereas a break below has the potential to trigger a 300-point drop to the Trump electoral lows.