The AUD/JPY cross is trading in positive territory for the third consecutive day, hovering around 98.20 during Friday’s early European session. The Australian Dollar (AUD) continues to strengthen against the Japanese Yen (JPY) as political uncertainties in Japan weigh on investor sentiment.
Japan’s Prime Minister Shigeru Ishiba has announced his resignation, a development that could give the Bank of Japan (BoJ) additional flexibility to delay its next interest rate hike, particularly if a successor focuses on avoiding a spike in borrowing costs. This well-prepared article from Fletrade highlights the most important aspects of the topic.
Technical Outlook: Bullish Momentum Above Key EMA
From a technical perspective, the constructive outlook for AUD/JPY remains intact. The pair is well-supported above the 100-day Exponential Moving Average (EMA) on the daily chart, suggesting that the bullish momentum is still in play.
Investors and traders may view this as a signal that buyers retain control, keeping the door open for further upside movement.
However, caution is warranted. The 14-day Relative Strength Index (RSI) sits above the midline near 71.00, signaling an overbought condition. This implies that while the bullish bias is strong, the uptrend could face temporary resistance, and a short-term consolidation or pullback cannot be ruled out before further AUD/JPY appreciation resumes.
Key Resistance Levels: Eyes on 100.00 and Beyond
For traders looking at upside potential, the immediate resistance level is seen at the 100.00 psychological barrier. Breaking and closing above this level would be a significant bullish signal, likely attracting additional buy orders.
Beyond 100.00, the next notable resistance is at 101.56, which corresponds to the high of November 20, 2024. A decisive breakout past this mark could extend momentum toward 102.41, the high of November 7, 2024.
Traders should monitor volume trends and candlestick patterns near these resistance levels, as they can provide early hints of whether bullish pressure is likely to continue or if the pair might face a reversal.
Support Levels: Key Floors to Watch
On the downside, the initial support level for AUD/JPY is located at 97.01, the low of September 10. A failure to hold this level could expose the next support at 96.31, which marks the low of September 5. Below that, the 100-day EMA at 95.50 provides a further technical floor that could stabilize the pair during a correction.
Traders often look at moving averages like the 100-day EMA as dynamic support, especially during bullish trends. If AUD/JPY approaches these levels with declining RSI momentum, it may create attractive buying opportunities for medium-term bulls.
Market Drivers: Political Uncertainty and BoJ Policy
The recent strength in AUD/JPY is influenced by both technical factors and fundamental developments. The resignation of Japan’s Prime Minister Shigeru Ishiba has introduced an element of political uncertainty, which tends to weaken the JPY as investors price in potential delays in monetary tightening by the BoJ.
If the next Prime Minister is cautious about rising borrowing costs, the BoJ may postpone rate hikes, maintaining a loose monetary stance. In contrast, AUD continues to benefit from the Reserve Bank of Australia’s (RBA) cautious but steady policy, supporting the uptrend in AUD/JPY.
Technical Indicators: RSI Signals Caution
While moving averages confirm bullish support, the RSI highlights that overbought conditions are present. The 14-day RSI at 71 is above the traditional overbought threshold of 70, indicating excessive short-term buying. Traders should watch for divergences, which could signal a potential pullback or range-bound consolidation.
Key takeaway: The bullish bias remains intact, but risk management is crucial as momentum-driven rallies often experience intermittent corrections when the RSI signals overbought conditions.
Trading Strategy Considerations
Short-term traders may look for profit-taking opportunities near resistance levels at 100.00 and 101.56, especially given the overbought RSI. Conversely, longer-term bulls could monitor support zones at 97.01, 96.31, and 95.50 for potential buy entries on any pullbacks.
Stop-loss placements just below key support levels can help manage downside risk, while take-profit targets should consider psychological and historical highs such as 100.00, 101.56, and 102.41. Combining trend-following indicators with RSI confirmation can enhance trade timing and reduce exposure to sudden reversals.
Conclusion
In summary, AUD/JPY maintains its bullish vibe above 98.00, supported by both technical structures and fundamental drivers such as JPY weakness amid political uncertainty. The 100-day EMA offers strong support, while resistance levels at 100.00, 101.56, and 102.41 define the upside potential.
Despite the constructive outlook, the overbought RSI warns of short-term caution. Traders should remain vigilant for consolidation or pullback phases before expecting further bullish continuation. Monitoring key support and resistance zones, along with momentum indicators, will be essential in navigating the AUD/JPY trend in the near term.
