AUDJPY formed a double bottom on its 4-hour time frame and appears to have broken above the neckline resistance around the 91.00 mark. In that case, the pair could be in for a rally that’s the same size as the pattern or around 350 pips.

However, technical indicators are suggesting that the selloff might resume. For one, the 100 SMA is below the 200 SMA and appears to be increasing the gap, which reflects strengthening bearish momentum.

Also, stochastic is on the move down from the overbought zone to signal a return in selling pressure. The oscillator has plenty of room to head south before reaching oversold levels, so AUDJPY might keep following suit.

RSI also looks ready to move lower after spending some time in the overbought zone, reflecting a buildup in selling pressure. If resistance holds, AUDJPY could make its way back down to the lows around 87.50.

There are no major reports due from Australia or Japan for the rest of the week, leaving this pair sensitive to overall market sentiment.

Reports that the Chinese economy is starting to reopen has lifted risk assets, including the higher-yielding Australian dollar. After all, a strong surge in business and consumer activity in the country would translate to stronger demand for Australia’s raw materials and commodities.

However, risk rallies might be limited by the prospect of higher borrowing costs, as emphasized in the latest FOMC minutes. The Fed signaled scope for more tightening in the coming months, which might keep a lid on overall economic performance, weighing on investor sentiment as well.

For now, the yen remains on weak footing as the BOJ continues to pursue easing measures such as bond-buying operations. The change in BOJ leadership could also bring uncertainty for the Japanese economy in the near-term.