Make or break below 91.00 on H&S formation

  • The distribution of stocks at higher levels advocates a bearish reversal of the asset.
  • A bear cross, displayed by the 20 and 50 EMAs, reinforces the downside filters.
  • The RSI (14) has moved into a bearish range from 20.00 to 40.00.

AUD/JPY is consolidating around its critical support of 90.43 printed in the last week of April. The pair is down sharply after hitting a high of 94.03 last week. Failure to kiss the resistance of the 95.00 round level triggered the Japanese bulls, which dragged the asset lower firmly.

The formation of a head and shoulders chart pattern on a four hour time frame has activated broader weakness in the pair. Usually, the formation of the above mentioned chart pattern signals an extended distribution of stocks in which institutional investors transfer their stocks to retail participants.

A bearish cross, represented by the 20 and 50 period exponential moving averages (EMAs) at 92.60 adds to the downside filters.

Additionally, the momentum oscillator, the Relative Strength Index (RSI) (14) moved from a consolidation range of 40.00-60.00 to a bearish range of 20.00-40.00, indicating a further bearish impulsive wave in the future.

A decisive drop in the asset below the April 26 low at 90.45 will take the cross down to the April 22 low at 88.40, followed by the March 11 high at 85.89.

On the other hand, Aussie bulls could regain strength if the asset breaks past the previous week’s high at 94.03. The occurrence of the same will send the crossover towards the April high and round level resistance at 95.75 and 97.00 respectively.

AUD/JPY four-hour chart