Forex Market: AUD/JPY trading forecast for October 12th

Friday’s trade saw AUD/JPY within the range of 86.84-88.41. The pair closed at 88.23, soaring 1.32% on a daily basis, while marking its eight consecutive trading day of gains. The daily rate of increase has been the sharpest since September 8th, when the cross went up 1.77%. The daily high has been the highest level since August 24th, when a high of 89.23 was registered. In weekly terms, AUD/JPY gained 4.41%, which has been the steepest weekly advance since the week ended on December 4th 2011, when it appreciated 5.67%.

On Monday (October 12th) AUD/JPY trading may be influenced by the releases listed below.

Fundamentals

Japan

Bank of Japan Minutes

At 23:50 GMT on Monday Bank of Japan will release the minutes from its meeting on policy, held on October 7th. The minutes offer detailed insights on central bank’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. Moderate-to-high volatility is usually present after the publication. In case the minutes show a hawkish outlook, this usually supports the yen, while a dovish outlook usually has a bearish effect on the national currency.

At its October policy meeting, Bank of Japan kept the pledge to expand Japans monetary base at an annual pace of about JPY 80 trillion yen. The Banks Policy Board decided by an 8-1 vote to buy exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) in order to boost their amounts outstanding by the annual JPY 3 trillion yen and JPY 90 billion yen respectively.

The central bank stated that Japanese economy continued following the path of moderate recovery, regardless of the impact slowdown in emerging economies has had on the nations exports and production.

According to the Banks Monetary Policy Statement: ”Exports and industrial production have recently been more or less flat, due mainly to the effects of the slowdown in emerging economies. On the domestic demand side, business fixed investment has been on a moderate increasing trend as corporate profits have continued to improve markedly. Against the background of steady improvement in the employment and income situation, private consumption has been resilient and housing investment has been picking up. Public investment has entered a moderate declining trend, although it remains at a high level. Meanwhile, business sentiment has generally stayed at a favorable level, although somewhat cautious developments have been observed in some areas.”

”With regard to the outlook, Japans economy is expected to continue recovering moderately. The year-on-year rate of increase in the CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices. Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the momentum of economic activity and prices in Europe, and the pace of recovery in the U.S. economy.”

”Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner.”

Correlation with Major Pairs

Taking into account the week ended on October 11th and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

AUD/JPY to AUD/USD (0.9925, or very strong)
AUD/JPY to NZD/USD (0.9462, or very strong)
AUD/JPY to EUR/USD (0.9449, or very strong)
AUD/JPY to GBP/USD (0.7473, or strong)
AUD/JPY to USD/JPY (-0.3583, or moderate)
AUD/JPY to USD/CHF (-0.8701, or very strong)
AUD/JPY to USD/CAD (-0.9596, or very strong)

1. During the examined period AUD/JPY moved almost equally in one and the same direction with AUD/USD, NZD/USD and EUR/USD. The correlation between AUD/JPY and AUD/USD was almost perfect.

2. AUD/JPY moved almost equally in the opposite direction compared to USD/CHF and USD/CAD during the week.

3. AUD/JPY moved strongly in one and the same direction with GBP/USD during the period in question.

Bond Yield Spread

The yield on Australias 2-year government bonds went as high as 1.909% on October 9th, or the highest level since October 7th (1.918%), after which it slid to 1.897% at the close to gain 0.004 percentage point on a daily basis. It has been the fifth consecutive trading day of increase.

The yield on Japan’s 2-year government bonds climbed as high as 0.014% on October 9th, or matching the high from the previous day, after which it fell to 0.010% at the close to gain 0.003 percentage point on a daily basis, while marking a second consecutive trading day of increase.

The spread between 2-year Australian and 2-year Japanese bond yields, which reflects the flow of funds in a short term, widened to 1.887% on October 9th from 1.886% during the prior day. The October 9th yield spread has been the most notable one since September 25th, when the difference was 1.897%.

Meanwhile, the yield on Australias 10-year government bonds soared as high as 2.738% on October 9th, or the highest level since September 25th (2.759%), after which it slid to 2.713% at the close to appreciate 2.1 basis points (0.021 percentage point) compared to October 8th, while marking a fifth straight trading day of gains.

The yield on Japan’s 10-year government bonds climbed as high as 0.339% on October 9th, or matching the high from the previous two days, after which it slipped to 0.332% at the close to lose 0.007 percentage point compared to October 8th. It has been the first drop in the past three trading days.

The spread between 10-year Australian and 10-year Japanese bond yields expanded to 2.381% on October 9th from 2.353% during the prior day. The October 9th yield difference has been the largest one since September 18th, when the spread was 2.401%.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for AUD/JPY are presented as follows:

Central Pivot Point – 87.83
R1 – 88.81
R2 – 89.40
R3 – 90.38

S1 – 87.24
S2 – 86.26
S3 – 85.67

By using the traditional method of calculation again, the weekly pivot levels for AUD/JPY are presented as follows:

Central Pivot Point – 87.00
R1 – 89.64
R2 – 91.06
R3 – 93.70

S1 – 85.58
S2 – 82.94
S3 – 81.52