Bearish Engulfing Pauses Bullish Advance

AUD/JPY Analysis:

• Premature optimism around the global vaccine roll-out could slow AUD/JPY^[1] advance
• Risk events: AUD^[2] unemployment data, BoJ rate decision
• IG Client Sentiment^[3] shows 60% of traders are short - suggests bullish continuation

Expectations Around Rate of Global Recovery May Slow AUD/JPY Advance

The Australian Dollar, along with its Australasian counterpart the New Zealand Dollar^[4], has benefitted form the anticipated roll-out of the covid-19 vaccines and the anticipated economic recovery that is expected to follow suit.

After the initial outbreak, China, Australia and New Zealand have managed to drastically decrease the number of new infections which many view as a positive sign for their respective economic recoveries.

Today China released better than expected GDP figures for Q4 2020 which is likely to have a positive knock-on effect for Australia due to their interrelationship, often referred to as the ‘core-perimeter model^[5]’.

However, the positive GDP data did little to stem the recent dip in AUD/JPY^[6] which calls into question whether the rest of the world is likely to experience an economic recovery like what is expected China and, by extension, Australia and New Zealand. Despite vaccines going ahead, there are a number of challenges that could impact the rate at which they can be deployed, such as cold storage, supply and efficient implementation.

Risk Events on the Horizon

Thursday is a crucial day for the pair as Australian unemployment data is released along with the Bank of Japan^[7]’s (BoJ) interest rate decision.

For all market-moving data releases and events see the DailyFX Economic Calendar^[8]

Key Technical Levels

Towards the end of 2020 and beginning of 2021 the Australian dollar