TA of the Day: Carry Trade Unwind Crushes AUD/JPY! What’s Next?

the Japanese Yen The pound is currently at its highest level in two and a half months, thanks to traders liquidating their bets against it ahead of the Bank of Japan meeting next week.

With the recent sharp decline in global stock markets, market participants have moved away from riskier assets and sought traditional safe havens such as the Japanese yen.

This shift in risk sentiment has led to Liquidating short positions (bets against) the yenwhich is often used as Financing Currency in carry trades.

In the context of the Japanese yen,pregnancy trade“Currency speculation involves borrowing money in yen, where interest rates are very low or even close to zero, and then investing that borrowed money in assets denominated in a higher-yielding currency, such as the US dollar or the Australian dollar.

Traders benefit from carry trade by earning interest rate differential Between the two currencies.

If the exchange rate remains stable or the yen falls in value, they can make a profit by converting the higher-yielding currency into yen and repaying the borrowed amount.

Closing or liquidating margin trades involves selling higher-yielding currencies and buying back the yen, pushing its value up.

Some analysts believe traders are buying back the yen to cover their short positions. It is likely to be over.This may provide some relief to the Australian dollar, which has been under severe pressure.

And so it is australian dollar/japanese yen Is a strong recovery expected?

you welcome in Teaching Assistant of the Day (TAOTD)! 👋

Here is the daily chart:

📈 Technical analysis of the AUD/JPY pair on the daily chart

Using the technical analysis concepts we covered in our Forex course, let’s analyze the AUD/JPY pair.

Simple moving averages:

• 10 period simple moving averageIt is located at 104.53. The current price is less This level indicates short-term bearish momentum. The slope is downindicating short-term weakness recently.
• 50 period simple moving averageIt is located at the level of 105.23. The price is also less This level indicates medium-term bearish momentum. The slope is downwhich reinforces the weakness in the medium term.
• 200 period simple moving average: It is located at 99.79 level. The price is a little high. above This level indicates a potential support area. The slope is to the topindicating a long-term uptrend, but the price approaching this level indicates crucial support.

If you are new to moving averages, read our Pipsology School lessons on moving average trading.

Relative position of moving averages:

• the 10 period simple moving average currently less the 50 period simple moving averageindicating that the short-term trend is more bearish From the medium term trend.
• the 50 period simple moving average He is up 200 period simple moving averageindicating that the medium-term trend was previously more bearish. rising The uptrend is actually a long-term trend, but recent price action has brought it closer to critical support levels.

Williams %R (14):

• Williams %RThe current reading is -84.34, indicating that the market is in a Oversold This indicates that the price may soon face support and may be about to bounce.

If you are new to Williams %R, read our Pipsology School lessons on how to use Williams %R.

🕵️ Key Notes

Price movement:

• Uptrend followed by correctionThe price was in an uptrend until early July, marked by higher highs and higher lows. Recently, the price faced a major correction from its peak at around 109.37 and is currently testing support at the 200-period simple moving average.

Support and resistance levels:

• SupportsThe immediate support level is located at around 99.79 (200-period simple moving average). A break below this level could indicate further declines.
• resistanceImmediate resistance is located at 104.53 (10-period simple moving average) and 105.236 (50-period simple moving average).

Moving averages:

• The 10-period simple moving average and the 50-period simple moving average are currently acting as resistance levels, while the 200-period simple moving average provides critical levels. Supports.

Williams %R:

• The presence of the Williams %R indicator in the oversold zone indicates a possible bounce or price consolidation.

market structure, market composition:

• Recent swing highs and lowsThe chart shows higher lows and higher highs until early July, followed by a recent low of around 99.209.
• Change personality (chouch):: ChoCh occurred when the price fell below the previous low at 104.00, indicating a shift to a bearish structure.

🤔 Possible trade scenarios

He is AUD/JPY Buy or Sell?

The following trading scenarios are provided for educational purposes only. Since they do not include full risk management practices, they are not intended to serve as actual trading recommendations, but rather as food for thought to help you generate your own trading idea.

Long bias:

• Point of ConsiderationConsider entering a long position if the price finds support near 99.79 and shows signs of a bounce, such as a bullish candlestick pattern or positive divergence on the Williams %R. Additionally, a break above the resistance level at 104.53 could signal a potential recovery.
• Point of cancellationConsider placing a stop loss below the support level around 98.50 to manage risk.
• potential targetWe expect a move towards 104.53 and higher if the uptrend resumes.

Short bias:

• Point of ConsiderationConsider entering a sell position if the price fails to hold the support level at 99.79 and shows signs of bearish momentum, such as a strong bearish candlestick pattern or the Williams %R indicator remains in the oversold zone.
• Point of cancellationConsider placing a stop loss above the support-turned-resistance zone at 104.00 to manage risk. This level is crucial as a break above it would invalidate the bearish setup.
• potential targetThe initial target could be the support level at 98.50. If the downward momentum continues, expect further decline towards 96.00 or lower.

📝 TAOTD Summary

• directionThe long-term trend appears to be bullish with price above the 200-period simple moving average, but the short-term and medium-term trends are showing significant bearish momentum with price below the 10-period and 50-period simple moving averages.
• Main levelsSupport at 99.79 and resistance at 104.53.
• PaidThe Williams %R indicator indicates an oversold condition, indicating a possible short-term recovery or consolidation.
• market structure, market compositionThe recent price change indicates a shift in the market structure from bullish to bearish.
• Moving average analysisThe downward slopes on the 10- and 50-period simple moving averages indicate strong bearish momentum in the short and medium term. The 200-period simple moving average, with its upward slope, indicates important long-term support, but the price is currently testing this level. Beware!