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AUD/JPY

The employment report was soft out of Australia last night and the initial response was a fall in AUD. China industrial production was a dissapointment and what’s bad for China, is bad for the Aussie since Australia conducts a lot of trade with China.
So we have a straightforward pair to trade against each other. Weak AUD and potentially strong JPY on risk aversion. Now this trade is good for the London session and look for pullback entries towards 83.50 with stops running above 83.75. Alternatively trade a continuation play. However, there may also be a potential for a longer term trade on this AUD/JPY pair if sentiment continues to weigh on the AUD. On the daily chart price has been making Lower highs and the oscillator has been making a higher high. Risk can be contained above the 100 and 200 DMA’s (blue and red lines). If a trade ‘spat’ becomes a true trade ‘war’ between the US and China this pair has the potential to drop considerably from a technical perspective. This is one chart to watch for the medium term. Now, I know that some people  struggle to see this hidden bearish divergences, so I will try and explain it briefly here for the benefit of those who are unsure of them. A hidden bearish divergence can be a really good way of signalling trend continuation , so it does pay to have a look at this technical strategy. See explanation here.

On the chart below I have marked price, with a trend line, as making a LOWER HIGH. That line is the top line moving diagonally down from left to right across the candlestick price chart. I have also marked the oscillator as making a HIGHER HIGH. That line is the bottom line moving across the RSI oscillator diagonally  from left to right. By looking at the explanations above the potential divergence should become clear.



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