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AUD/JPY holds the 200-DMA as USD takes on the yen, geopolitics should anchor

  • AUD/JPY snapped back following Trump's address of missile attacks, holds the 200-DMA.
  • AUD/JPY susceptible for a deeper move below the rising wedge formation for geopolitics deteriorate.
  • Iran and US stand-off in a ceasefire, although Ukraine aeroplane investigation and US sanctions could kick up fury. 
  • USD/JPY is bid following a strong jobs data report ahead of the Nonfarm Payrolls on Friday.

AUD/JPY is currently trading around 75 the figure having travelled within a higher today of between 74.84 and 75.20 (higher highs and lows). On Wednesday, US President Donald Trump delivered a diplomatic response to Iran's missile attack, albeit warned the aggressors that any further retaliation of top Iranian general, Qasem Soleimani, would be met with consequences, reminding Iran of the strength of the US military and economy.

President Trump said on Wednesday that Iran appeared to be "standing down", but markets are on red alert considering the mixed sentiment out there. For instance, a senior Iranian military commander vowed there would be "harsher revenge" against the United States despite Iran's political leaders saying that the Islamic Republic had "concluded" its response to Soleimani's killing. Nevertheless, AUD/JPY speculative shorts took their profits and the price moved from a low of 73.75 yesterday to a high of 75.20 today.

Greenback picking up a bid on a bullish outlook for US jobs creation

In addition, the USD has picked up the pace on the bid. The US dollar is usually strong during conflicts anyway, although coupled with strong economic data, USD/JPY was sent on a tear to the upside yesterday through the 200-day moving average and has continued to recover towards the December resistance in the 109.70s. This has also lifted the cross, with AUD/JPY trading on the heels of the US dollar and improved risk appetite.

As a prelude to tomorrow's Nonfarm Payrolls, the ADP National Employment Report on Wednesday showed private payrolls jumped by 202,000 jobs last month, the largest gain since April, after an upwardly revised 124,000 rise in November. Private job growth averaged 163,000 jobs per month in 2019, slowing from an average increase of 219,000 in 2018.

Risk-on supporting AUD/JPY's recovery

The S&P 500 is trading at all-time highs again, +0.56% at the time of writing while US 10-year yields remain off their conflict lows, consolidating through the 21-day moving average in a rising channel towards the 200-DMA, albeit down on the day by 1.16% at the time of writing.

Sanctions to come, Ukraine aeroplane under international investigation

Trump stated that further economic sanctions will be imposed on an already heavily sanctioned and economically crippled Iran, designed to deter Iran from developing nuclear weapons.

“As long as I am the president of the United States, Iran will never be allowed to have a nuclear weapon,” Trump said in his opening remarks yesterday when addressing the nation following the Iran missile attack. The United States is ready to embrace peace with all who seek it,” but, "Iran must abandon its nuclear ambitions, end support for terrorism." 

We are yet to see how Iran will respond to the announcement of additional sanctions, although markets should be cautious over this matter. Iran's supreme leader called his country's missile strike a "slap" to the Americans but proclaimed that Iran's real revenge will be forcing the US to pull out of the region. The US will not take such aggression lightly, committed to fighting terrorism in the area. Additionally, Foreign Minister Javad Zarif said Iran does "not seek an escalation of the war, but will defend ourselves against any aggression." 

Furthermore, Amir Ali Hajizadeh, who is the head of the Revolutionary Guard's Aerospace Force, also said the attacks on the US base marked the beginning of a string of attacks across the region, Iranian state television reported, according to Reuters. 

Meanwhile, early suspicions have transpired into US officials being confident Iran shot down the Ukrainian jetliner which killed all 176  passengers (including some 60 Canadians) in the hours after the Iranian missile attack. This is now under international investigation. A source who was in the briefing said it appears missile components were found near the crash site, Van Cleave reports.

When questioned on the incident by reports US President Trump has said, that this could have been a mistake:

"I have my suspicions... it is a tragic thing...someone could have made a mistake on the other side...it was flying in a pretty rough neighbourhood,"

Markets are keeping an eye on the investigation and weighing the implications. 

AUD/JPY levels

Bulls have managed to penetrate above the 200-day moving around 74.90, scoring the high of 75.20, so far.  This is going to b a tough area of resistance to crack, mind you, considering it has a confluence of the 23.6% Fibonacci retracement of the range since Aug 2019. Failures here opens risk back towards 74 the figure. A bullish continuation, however, from this juncture, will open 76 the figure, 76.20 and 77.20/50 and the 21-month moving average as the summit of the rising wedge formation. 

On the flip side, bears can target a break to the vicinity of the June lows and a confluence of the 38.2% Fibonacci (range since Aug 2019 – 2019 trendline resistance/turns support). However, on further escalations, a greater support barrier (since GFC 2009) comes in at the 61.8% Fibonacci (range since Aug 2019) between 72 the figure and 72.50. 

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