AUD/JPY in the red, does it indicate risk-off?

AUD/JPY cross, a widely considered barometer of overall risk sentiment, is trading in the red suggesting Yellen’s hawkish comment could trigger a wave of risk-off action in the markets across the globe.

Safe havens relatively resilient

Fed’s Yellen talked up rate hike bets on Friday by informing markets that the case for rate hike has strengthened. The resulting broad based dollar rally saw a sharp rise in USD/JPY and a drop in AUD/USD pair. A similar move is seen in Asia, although the drop in the Aussie is more than the weakness in Yen.

What the drop in the AUD/JPY indicates is that safe haven currencies like Yen are resilient compared to risk currencies like AUD. This is usually an indication of risk-off in the markets.

AUD/JPY Technical Levels

A break above immediate hurdle of 77.00 (50% of Brexit day drop) would open doors for test of 50-DMA at 77.66 levels. Further gains could run into resistance at 78.09 (61.8% of Brexit day drop). On the lower side, breach of 5-DMA of 76.63 could yield a test of support at 76.10 (Aug 24 low) under which the cross could target 75.05 (July 8 low).