The rate cuts declared by the Reserve Bank of Australia (RBA) on the 2nd of August weakened the Aussie against the currencies of other major economic powers such as Japan. The AUDJPY declined from a high of 78.61 to a low of 76 in a matter of three weeks. However, we believe that the Aussie will strengthen once again due to Australia’s continuing growth in the housing sector. On the other hand, the Japanese economy continues to struggle without any firm indication of recovery. Ironically, the safe-haven appeal of the Japanese Yen is also constraining growth to a large extent. This article discusses the reasons behind our short-term bullish view on the AUDJPY pair.
The unemployment rate in Japan is near the 21-year low. However, this tells only one side of the story. In a healthy economy, the decline in the unemployment rate is always accompanied by a reasonable rise in retail prices. This is not so in the case of Japan. On a y-o-y basis, retail sales declined by 0.2% in July. The analysts were expecting a decline of 0.9%. Since the retail sales data was better than the consensus, it looks as if the situation is improving. However, it should be noted that retail sales have not recorded any growth, only a decline. Furthermore, the seriousness of the issue can be understood by the fact that this was the fifth consecutive month of decline in sales.
Similarly, the household spending in July declined 0.5% on a y-o-y basis. It was also the fifth consecutive month of decline. Analysts were expecting a 0.9% reduction in household spending. The household spending plunged 2.2% in June.
As far as Australia is concerned, on a m-o-m basis, the building approvals in July recorded a stupendous 11.3% growth. The analysts were anticipating the growth to remain flat compared to the prior month. Considering the above, we believe that the AUDJPY pair will strengthen further in the days ahead.
The historic chart of the AUDJPY pair reveals strong support at 76.50. The RSI indicator has pierced into bullish territory. Thus technically, the AUDJPY pair is expected to ascend further. A forex trader should take a long position in the AUDJPY pair near 77. As a matter of caution, a stop-loss order should be placed below 76. The profit for the trade can be taken near 79.
A one-touch call option can be purchased from a suitable binary broker’s portal to gain from the probable uptrend. The strike price for the AUDJPY call option contract should be 79 or lower. Furthermore, a time span of about four weeks should be allowed for the contract to expire.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
