Potential signal:
- If this pair breaks above the 115 yen level, I am buying with a stop at 114 and a target of 118.
- The Australian dollar has rallied against the Japanese yen on Friday, as we are continuing to see the carry trade play out.
AUD/JPY
The Australian dollar has initially rallied a bit during the trading session on Friday, breaking above the recent swing high as we continue to see a lot of momentum in this market due to the carry trade. All things being equal, this is a market that still attracts buyers due to the fact that you get paid at the end of every day, and therefore you can build a bit of momentum. But if we were to break above the 115 yen level, then it could send this market much higher.
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All things being equal, the last several months have seen a 500-point range that we have been in, and I do think that will continue to be something that people will have to watch. The 500-pip range being broken out of suggests, at least from a technical analysis standpoint, another 500-point move to the 120 yen level.
Carry Trade Dynamics and Key Support
Short-term pullbacks offer buying opportunities if this continues. But even if we were to break down drastically, the 110 yen level is an area that has been important a couple of times. The 200-day EMA sits right there as well.
So ultimately, I think you've got a situation where traders are looking for value. We've been bouncing around. We are a little extended here, so now as we approach the 115 yen level, I'm a little bit more cautious, but a breakout above there could kick off the next leg higher in what has been a fairly reliable carry trade pair.
And it's still a very bullish market despite the fact that the Bank of Japan has intervened a couple of times. Quite frankly, Japan cannot handle high interest rates with its debt load, and of course, the market is sniffing that out. So, a weaker yen longer term makes more sense than not.
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