Aussie/yen pair breakout could be sign of strength in risk assets, says Matt Weller.
For the second day in a row, the Japanese yen is the weakest major currency as today’s heavy risk-on bent leads to selling in the safe haven currency. Meanwhile, the Aussie has caught a big bid despite the Reserve Bank of Australia citing “increased risks” to the household sector.
As a result, AUD/JPY is seeing a big bullish breakout from its three-month, 230-pip range. After a prolonged period of tight range bound trading, the pair could see a strong bullish continuation from here. Indeed, the measured move objective of the breakout from the Q1 range projects a move up toward the mid-December high near 82.25, as the chart below shows:
Source: TradingView, FOREX.com
From an intermarket perspective, AUD/JPY is seen as a barometer for risk appetite across all markets. This means that a continued rally in the pair could help drive U.S. stock indices to record highs as we move through earnings season. Conversely, traditional safe haven assets like government bonds and gold may face headwinds moving forward.
