AUDJPY has been carving out a descending triangle pattern on the short-term time frame, with price printing a series of lower highs connected by a descending trendline while the floor around 111.40 has held as a relatively firm horizontal support.
The pair is currently testing this critical floor, and a decisive break below it could set off a more sustained downtrend in the sessions ahead. The descending triangle is inherently a bearish formation, and with price compressing tighter against the support level, the pressure on buyers is mounting.
A clean breakdown below 111.40 would confirm the pattern and open the door to a measured move lower, potentially dragging the pair toward the 111.000 psychological level and beyond. On the flip side, if the support manages to hold, a relief bounce back toward the descending trendline resistance around 112.500 could be on the cards.
The moving averages are adding to the bearish case, as the 100 SMA (blue) has crossed below the 200 SMA (red) in a bearish crossover, confirming that the path of least resistance is now to the downside. Both indicators are also sloping lower and sitting well above current price, meaning they could act as dynamic resistance on any attempted recovery.
Stochastic has dipped into the oversold region, with the lines hovering near the bottom of the range and showing little sign of a bullish crossover just yet. While this suggests exhaustion among sellers in the near term, the oscillator could remain depressed for an extended period if bearish momentum picks up on a breakdown.
RSI is also deep in the lower portion of its range around the 40 area and appears to be turning back down after a modest bounce, reflecting sustained selling pressure. With the oscillator yet to reach oversold extremes, there appears to be enough room for further downside, keeping the breakdown scenario very much alive.
Geopolitical headlines influencing overall risk sentiment could determine whether or not AUDJPY could sustain a potential breakdown, as a return in risk-taking could spark a major reversal.