AUD Flirts with Parity ahead of Jobs Data- JPY Advances on Euro Fears

DailyFX   |  May 9 2012 12:53 EDT

The risk aversion trade has carried over into the US session with the yen outperforming all of its major counterparts. Key levels in play on the AUDUSD andUSDJPY.

Daily Winners and Losers

The Japanese yen is the top performer against a stronger dollar for the second consecutive session as ongoing concerns about the deteriorating political standoff in Greece intensified with broader market sentiment trading heavy at the close of European trade. Risk aversion trades have continued to stoke demand for the reserve currency with the dollar advancing against all its major counterparts save the yen.

The USDJPY has continued to trade within the confines of a descending channel formation off the March highs with the exchange rate holding below the 50% Fibonacci retracement taken form the February advance at 79.90. The pair has now moved below 100-day moving average at 79.65 and while our medium-term bias on the pair remains weighted to the topside, we note favorable long entries between the 61.8% retracement at the 79-figure and the 79.65 mark with our initial objective eyed at the 23.6% extension just shy of the 82-figure. Longer-term targets are eyed above the 84-handle.

The scalp chart shows the USDJPY holding below the 61.8% Fibonacci extension taken form the April 1st and 20th crests at 79.90 with the pair rebounding just ahead of the 78.6% extension at 79.40. As we noted in yesterday’s Winners/Losers report, the sustained risk-off environment risks further losses for the USDJPY with subsequent floors seen at 79.20, the 79-figure, and the 100% extension at 78.75. Interim topside resistance stands at 79.70 backed by the 61.8% extension at 79.90 and the 50% extension at 80.25. A breach above the confluence of this level and channel resistance dispels further downside pressure with such a scenario eyeing targets at the 38.25 extension at 80.60, 80.85, and the 23.6% extension at 81.05.

Key Levels/Indicators

The Australian dollar is the weakest performer for a second consecutive session with the high yielder remaining under pressure as investors continue to flock into the perceived safety of the greenback and the yen. The AUDUSD broke below our weekly objective at the 78.6% Fibonacci retracement taken form the December advance at 1.0075 before rebounding off channel support in early US trade. It’s likely we will hold this level throughout the session with rally’s in the aussie offering favorable short entries ahead of key employment data on tap later tonight. Note that RSI remains poised for a downside break into oversold territory with such a scenario offering further conviction on our directional bias.

The scalp chart shows the pair trading within the confines of an embedded descending channel formation dating back to the April 27th highs with the aussie breaking below the 50% Fibonacci extension taken from the April 27th and May 7th crests at 1.0050 before rebounding off channel support at 1.0020. Interim topside resistance stands at 1.0070 backed by the 38.2% extension at 1.0088 and the channel resistance at 1.0115. A break above this mark alleviates some of the pressure with subsequent ceilings eyed at 1.0140 and 1.0170. We continue to favor selling into aussie rallies with a break below channel support eyeing targets at parity, 9980, the 78.6% extension at 9950 and 9920.

Key Levels/Indicators

---Written by Michael Boutros, Currency Strategist with DailyFX.com

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