The Australian dollar has rallied against several currencies again on Thursday, but the Japanese yen could be signaling further weakness.
AUD/JPY
The Australian dollar has rallied against the Japanese yen again during the trading session on Thursday as we continue to see the carry trade play out. Ultimately, the market looks as if it is trying to get to the 115 yen level, an area that has been resistance more than once and therefore should be paid close attention to. If we were to break above the top of that consolidation area near the 115 yen level, then it could kick off a much bigger move to the upside.
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Overall, short-term pullbacks, I do think, continue to find buyers as the Japanese yen itself is rather soft, and despite the fact that the Bank of Japan has intervened 3 times over the last year or so, it does make a certain amount of sense that the market would eventually test it.
Carry Trade Momentum and Key Technical Levels
Overall, though, this is a market that I think will continue to be noisy, and we, of course, will have to pay close attention to anything that the Bank of Japan says or does. But any significant sell-off here opens up the possibility for me to find value. After all, I've been short of the Japanese yen in multiple currencies for some time, and as a result, I look at this through a reason for just adding. Every time we dip, I build on a large position.
It's really not until we break down below the 200-day EMA at the 110 yen level that I would have to think that this is a bigger negative move. Really, at that point, I don't want to get short; I just wouldn't want to be long. I continue to collect swap at the end of every day with my Japanese yen shorts. This is one of the pairs that I think could be signaling that the yen is in even further trouble.
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