The Australian dollar dropped slightly against the Japanese yen on Tuesday but has since shown buyers coming back into the markets, with the 114-yen level offering that buying area.
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AUD/JPY
The Australian dollar fell against the Japanese yen during the trading session on Tuesday as we continue to see a lot of noise around the world in financial markets. This is an interesting market for me, mainly because it is so sensitive to risk appetite and everything that is going on in general worldwide.
With that being the case, I think you have a situation where it's interesting that we turned around to show signs of support at the 114-yen level, an area that's been important a couple of times here in the last 5 or 6 trading sessions. To the upside, the 115-yen level continues to be a bit of a barrier as well, and if we can break above that, I think it would be a very bullish sign. Ultimately, at this point in time, the Australian dollar opens up a path much higher.
Interest Rate Differentials and BOJ Limits
I have no interest in shorting this pair, as the interest rate differential between the Australian dollar and the Japanese yen continues to push things much higher. Over the longer term, this is a pair that I think probably moves right along with everything else against the yen, as the yen itself is in trouble.
With the Bank of Japan possibly raising interest rates by 25 basis points later this year, but it still creates a massive interest rate differential with other currencies. With the massive amount of debt that Japan also faces, it makes a certain amount of sense that there's only so much that the Bank of Japan can do.
With that being the case, traders continue to look at this as a buy-on-the-dip situation, and I most certainly do. In fact, my heaviest position right now is short the yen against the US dollar, but I do have some exposure of the Australian dollar going higher. The market continues to see a lot of volatility and choppiness, but I do think that it continues to show strength.
Potential signal: I am buying above 115, with a stop loss at 114. I would aim for 119.