By: Christopher Lewis
A couple of sessions back, I took a look at the AUD/JPY pair as one that could potentially be ready to make a move. Based upon a triangle that had been forming, the moving averages going sideways, and the pair pressing upwards against a Fibonacci 50% retrace level, I thought that perhaps the move was coming quickly, and it appears that it did in fact happen.
In order to understand why this was significant, we need to understand the underlying physiology that often accompanies this pair. The Aussie dollar is without a doubt one of the favorite currencies for those who are feeling good about the economic picture globally, as many countries will increase purchases of raw materials – of which Australia is abundant. Copper, Iron, and Gold are all big exports from there, and as people want more, they need to pay the Aussie in their own currency.
The Japanese Yen on the other hand, tends to be bought when times are poor. It is also sold in the inverse, as many large firms will borrow money in Yen (because of the low interest rate) and buy other higher yielding currencies and financial instruments in those countries. Because of this, when the AUD/JPY cross rises, it normally means traders are feeling very optimistic.
Waiting for an Entry
The breakout over the last few sessions can leave no real doubt as to whether or not this pattern has given way. The pair is simply reacting to the overall strength of the Aussie dollar. The AUD has gained against almost all other currencies in the last few sessions, and has even broken out against the Dollar in a massive triangle confirmation that leads me to believe that AUD/USD will eventually hit 1.12 or so.
.png "AUD/JPY Daily 1/23/12")
With this in mind, looking at the moving averages, (20 and 50 EMAs) have started to turn upwards, confirming momentum to the upside. The breakout has even risen above the 61.8% Fibonacci retracement, and as a result the bulls are starting to take over. With this in mind, I am waiting to see a pullback and supportive candle in the red box that I have on the chart in order to enter to the long side on this trade. I will not sell, and expect the usual pullback over the next couple of days or so.