AUDJPY could be in for a reversal from its downtrend as an inverted head and shoulders pattern formed on its 4-hour time frame. Price has yet to break past the neckline at the 75.80 mark to set off a climb that’s around the same height as the chart formation.
The 100 SMA is still above the longer-term 200 SMA to indicate that the path of least resistance is to the upside. In other words, the uptrend is more likely to gain traction than to reverse. Price has found support at the 200 SMA dynamic support and is starting to climb above the 100 SMA dynamic inflection point.
RSI is heading up to show that buyers are in control and that a bullish breakout might still be possible. Stochastic is also pointing up to show that buyers have the upper hand, but the oscillator is already dipping into the overbought zone to signal exhaustion. Turning lower could show that sellers might still return.
Risk appetite appears to have picked up after the FOMC minutes as the central bank hinted at the possibility of a rate cut in their next meeting. Although they acknowledged some improvements in recent data, policymakers warned that further deterioration could warrant more easing action.
On top of that, improving trade relations between the US and China are also lifting the higher-yielding Aussie. The RBA already cut interest rates twice so traders might be looking forward to the stimulus this provides the Australian economy from here.
On the flip side, the BOJ is still expected to ease monetary policy sooner or later as policymakers already hinted at it and data has been coming in weaker than expected. Stronger risk-taking could also drag the lower-yielding Japanese currency down.