AUD/JPY the most oversold since the pandemic plungeYou don’t see unwinds of Japanese yen carry trades like we’re seeing right now outside of crisis periods. It doesn’t feel like we’re in a crisis, making me wonder just how long the current bearish move will last?
AUD/JPY has been among largest casualties, hammered lower by a combination of China pessimism, large declines on Wall Street and narrowing yield differentials between the United States and Japan.
I discussed a short setup in AUD/JPY yesterday, but such has the speed of the unwind been it’s nearly reached the target after falling more than 150 points, extending the decline from the recent peak to over eight big figures.
While I think there’s more downside to come, it’s rare for such a liquid FX pair to so sharply in one direction for a sustained period. Even during my time on the desk during the height of the GFC, we saw massive countertrend rallies during what ended up being the largest carry trade unwind on record.
As such, when the market provides the signal, I’m positioning for a bounce with the help of long-running uptrend support which is located just 40 pips below where AUD/JPY currently trades.
Should it hold, or if the market is unwilling to test it in early Asian trade, buying with a tight stop around 100.60 is one setup, allowing traders to target a push back towards horizontal support at 102.64.
To put in context just how oversold AUD/JPY is, on RSI (14), you have to go back to the initial panic at the start of the pandemic to find a similar reading.
DS
