From the desk of Tom Bruni @BruniCharting
Tuesday’s Mystery Chart is one of my favorite charts right now, so thank you all for your feedback and participation.
I received a lot of answers, but I’d say 2/3 of you were buyers and the other 1/3 were buyers at lower prices and taking profits at current levels.
With that as our backdrop, let’s get into it.
Here’s a weekly chart of JPY/AUD breaking to new 10+ year highs as momentum gets overbought. From a risk management perspective, as long as prices are above the recent pivot low of 0.0125 then this breakout is intact and targets its 2009 highs near 0.0172 over the long-term.
Click on chart to enlarge view.
So this currency pair is breaking out, why the heck does it matter for those of us who don’t trade currencies?
Within the G10 universe, the Australian Dollar is the most commonly observed risk-on currency. In contrast, the Japanese Yen is considered a safe-haven. This makes the JPY/AUD forex cross a great barometer for the global economy, and more importantly, risk appetite of market participants.
The recent price action in these currencies has been flashing warning signals. JPY/AUD is at its highest level in 10-years. The Yen is also hitting new 52-week highs vs the US Dollar. Meanwhile, the Aussie Dollar has fallen to its lowest level relative to the US Dollar since 2009.
This price action is not isolated as we are seeing many currency pairs hit fresh multi-year lows vs the US Dollar, like GBP, KRW, NZD, SEK, etc..
At the same time we are seeing Interest Rates around the world collapse, Precious Metals break out of multi-year bases, and the equally-weighted CRB Commodity Continuous Index hitting nearly 3.5-year lows.
Yesterday we talked about Dr. Copper testing a critical support level.
Needless to say, a lot of these intermarket signals did not confirm the all-time highs in US Equities and are not headed in the right direction. This defensive positioning of market participants is the pricing in of lower inflationary/growth expectations all around the globe.
Until we start to see these measures stabilize and begin heading in the right direction, it’ll be difficult for risk assets to make sustainable moves higher.
Thanks for reading and please let us know if you have any questions!