Originally published by AxiTrader
Key Takeaway
The Australian dollar-Japanese yen exchange rate has been in a mild uptrend over the course of 2017 so far.
Last night with the strength in the yen which drove USD/JPY down to a low around 111.70 AUD/JPY again retested the bottom of that uptrend line as Fed speakers warned that a March rate hike was live.
We always respect these trendlines but there are signs that AUD/JPY might also be a function of the recent Trumponomics rally in stocks. That makes the markets reaction to president Trump's speech today all important for this cross.
What You Need To Know
I'll never forget when I first learned how to put two time-series of data on the one excel chart. It reminded me of the saying about lies, damned lies and statistics. That's because while you can fit two time series together on the chart there is no guarantee that there is any kind of causality to drive that correlation.
So it is with some trepidation that I offer a hypothesis about the recent price action in the AUD/JPY and its relationship - rather than correlation - with the Trumponomics rally in US and global stock markets.
My hypothesis is that the current - apparent - relationship between the moves in AUD/JPY and the S&P 500 reflect the risk appetite component that AUD/JPY can often represent in global foreign exchange markets.
That is the Aussie represents the global traders and investors favourite Forex bet on growth and investor optimism and risk appetite while the yen represents the other side of the risk coin - fear.
So as global reflation and the Trumponics rally takes hold the best way in the G10 currencies for traders who want to abstract the USD dollar from a forex bet has been to buy AUD/JPY.
Naturally that also means anything that threatens the rally in stocks - perhaps disappointment at today's address by President Trump - could also weigh on AUD/JPY if stocks fall and the yen goes bid again.
I'm comfortable that there is a reasonable causality in this current correlation - even if it ultimately proves transient.
Looking at the chart of AUD/JPY the support is clear.
While 85.70 holds the uptrend is intact. But if it breaks a fall of 100 points, perhaps more opens up.
Have a great day's trading.