Technical Momentum Signals
The 14-day Relative Strength Index (RSI) has eased towards the mid-40s after leaving overbought territory. This signals weaker upside momentum and the potential for consolidation or a retracement. Support is seen at the lower channel boundary near 109.80, then the 50-day EMA at 109.67. A further drop could open the way to the psychological level at the seven-week low of 107.73. On the upside, resistance sits at the nine-day EMA near 111.00 and the upper channel boundary around 112.10. A break above the channel could lift AUD/JPY towards the all-time high of 113.96, set on 11 March. Looking back at the analysis from March 2025, we saw the AUD/JPY pair trading in a descending channel around 110.20. That period of consolidation was important, as the key support near the 50-day EMA was tested but ultimately held. This confirmed the broader uptrend remained intact for much of the rest of that year.Macro Policy Divergence
The environment has shifted significantly since we looked at those charts in 2025. The Bank of Japan is no longer a passive player, having signaled a clear move away from its ultra-loose policy late last year. With Japan’s core inflation holding at 2.8% in February, expectations are growing for another rate hike, which will likely add strength to the Yen. On the other side, we see the Reserve Bank of Australia holding its cash rate steady at 4.35% for the fifth consecutive meeting, suggesting policy has peaked. This policy divergence, where Japan is tightening while Australia is on hold, fundamentally caps the upside for the AUD/JPY cross. We believe this pressure will keep the pair from revisiting the highs we saw in early 2025. For the coming weeks, we are considering buying put options to hedge against or profit from a potential downturn. This strategy allows us to define our risk while gaining exposure to downside movement driven by a stronger Yen. We see value in puts with strike prices below the current support levels, targeting a move back toward the 108.00 handle. Alternatively, for those holding long positions, we think selling out-of-the-money call options is a prudent strategy to generate income. With the fundamental picture limiting significant upward momentum, collecting premium from calls with strike prices near last year’s highs around 113.00 could enhance returns. This approach benefits from the expected range-bound price action in the near term. Create your live VT Markets account and start trading now.
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