FxWirePro: Bearish/Bullish Scenarios of AUD/JPY and FX Derivatives Trading Strategies

Bearish AUDJPY scenarios below 78.500 by Q3 end if:

1) The RBA cuts rates more quickly than we expect; 

2) The Fed responds to firm labor market outcomes by reinvigorating the 2019 rate guidance; 

3) The financial conditions in China deteriorate materially.

4) The global investors’ risk aversion heightens significantly,

5) The markets further price in a possibility of the Fed’s rate cut, 

6) The US starts vehemently criticizing Japan’s trade surplus against the US and 

7) Japan's economy further decelerates and speculations for the BoJ’s additional easing grows.

Bullish AUDJPY scenarios above 72.007 by Q3 end if:

1) China eases policy more forcefully and commodities rally; 

2) Australian unemployment falls below 5% and the RBA closes the door on rate cuts in 2019.

3) The momentum in JPY selling flows related to outward portfolio investments and FDI strengthens.

Key events to be looked in for (From Aussie side:

The Federal election: 18 May

RBA meeting (Jun): 4 Jun 

GDP (1Q): 5 Jun 

Key events to be marked into the calendar (From Japan side): 

BoJ meeting (June 20)

The US-Japan trade talk (end-May) 

Trade updates:

We kept urging AUDJPY shorts from 85.32 levels for a target of 78 levels which is already achieved. 

On hedging grounds, we, now, advocate adding longs in a 3m AUDJPY put, strike 78.500, short a 2m AUDJPY OTM calls also (with strikes at 79.00). Thereby, one can achieve the objective of the reduced cost of hedging.

Alternatively, shorting futures of mid-month tenors are advocated with a view of arresting further potential slumps. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.

While on a trading basis, short AUDJPY in cash (spot reference: 75.925 levels, with strict stop 76.292 level for a target of 75.401 level. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly AUD spot index is flashing at -20 (which is mildly bearish), hourly JPY is at -113 (highly bearish) while articulating at (11:22 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex