AUD/JPY - Live Rate, Forecast, News and Analysis

This is more of a brain dump to encourage discussion, so I'd love to hear your thoughts.
Something strange happened this week.
Stocks fell off - mostly Japanese stocks, but equity markets everywhere suffered nasty losses. The S&P 500 shat a nasty reversal candle on Thursday, and the Nikkei posted one of its largest falls in history on Friday.
At the same time bonds fell (yields rose). The US Dollar also fell.
That's not how it's supposed to work.
When stocks fall, bond yields fall (bond prices rise) because more people buy them. Where the hell was the money going?
Into the Yen and the Swiss Franc, mostly. The Yen because most of the action was in Japan. The USD/JPY and Nikkei 225 are HEAVILY correlated. I can't tell if the fall in stocks preceded the fall in USD/JPY (and AUD/JPY, which many say led the way), or if it was the other way around, but either way we had classic risk aversion kicking in.
USD/JPY posted its largest weekly decline since 2011.
There was some jawboning, and data from Japan to suggest that the new QE measures are working.
But wait a second: they've only just started. That money hasn't really filtered down to anywhere where it's actually being used to power the economy. The only real effect so far has been a massive uplift in stocks. This is because a lot of the Nikkei 225 is made up of exporters and multi-nationals, and a falling Yen boosts their expected profits - nobody's actually made any money yet.
The technicals still only say "retracement", not "reversal", but we're hanging in by a thread - especially USD/JPY. If we break Friday's low, 100 is in sight. If this break is for real, this psychological barrier will mean absolutely nothing.
After this 97.00 is next, then 95.00/94.50, then 92. I don't think any fall would get down to 92, or even 94, but 97 is highly possible by the end of this week - and if we get there, it could be in a matter of minutes.
Before I go on, COT data
(For newbie traders, COT means Commitment of Traders, and it's a series of complicated charts showing net speculative futures positioning. When you overly it onto price data, you will find that extremes of short positioning tend to precede massive rallies. This is because a LOT of people get increasingly short as price starts to fall, which reaches an extreme as it continues to fall. Price starts to come back up, and the extreme extends a little bit more, before you get a short squeeze and everyone buys furiously to get out of unprofitable short positions)
Aussie COT showed a massive extreme in short positioning: http://stocktwits.com/message/13774559
So did the Japanese Yen: http://stocktwits.com/message/13774580
The most telling is the S&P500: http://stocktwits.com/message/13774599
The light blue line says that the big money is getting more and more out of stocks (or since it's futures positioning, they're starting to bet it will fall)
All other things being equal, this means these two are probably due a large correction. All other things might not be equal, however. Extremes in quiet times can become the norm in unusual circumstances - bear this in mind.
This is the scenario if Asian stocks lead the fall. Longs are clearly nervous, but the docket is light this week. This alone could be enough - with minor bad news sparking panic selling. The US Dollar could see some initial selling purely on USD/JPY, pushing the majors higher. This will happen during the Asian session. If it happens in the morning, you will see European markets open lower, and we might get early USD weakness as USD/JPY sells off.
But it won't last. The risk aversion will spill into European and US stocks as these markets open, and they may gap significantly lower. In this case the Swiss Franc will strengthen first, followed by the US Dollar. So I don't like USD/CHF so much here. The US Dollar will almost certainly surge once US markets open.
If this is the real deal, (and that is the biggest fucking "IF" ever because many have called this reversal lots of times and have given up after being wrong repeatedly) this dollar surge will be enormous. The world will be waking up from its dream of a fragile recovery that has been overblown by surging stock markets.
Stock markets have been rallying for mixed reasons. Some of it is investor confidence, but most of it is simply the search for yield, which most cash investments can't provide at the moment. Dividend yields in stocks are good, and fund managers have been buying them because they need to beat indices, which are rising more quickly than the values of their portfolios. This cycle has fed itself, and stocks have risen, even though demand for those companies' products and services has remained tepid.
If this happens, the Yen crosses will be blown to bits, as will the majors. But don't just go short everything if you see it falling. It will be difficult to know whether it's the real thing, and you'll have to be in front of your trading screen at the time (unless you want to set breakout orders)
We are seeing all the signs of a minor bubble bursting.
The headlines have been all about markets hitting new highs, and everybody buying stocks. That is usually a sign that the smart money has started selling their large holdings to incoming retail investors, and that a lot of the profit from the bull run has been made. If stocks start to look wobbly up here, the last ones in will be the first ones out.
Look at USD/JPY or the other Yen crosses zoomed out to 2005. The rise is absurd. I showed it to my girlfriend, who doesn't know the first thing about Forex, and she said it looked unnatural and if she had to guess, the next move would be "down a bit". This kind of woke me up a little - it was so obvious because the move up seems to be against the laws of nature, even if backed by fundamentals. Humans are good at pattern recognition, and even she could look at previous price action and recognize that a sharp rise like this almost never happens without a bit of falling.
It all depends on where you bought.
For example, if you had held USD/JPY since 92.00, and you planned to hold it for the rest of the year, you wouldn't worry so much about a drop to 97 (though it would be annoying). If you were long on a break of 100.00, you would be getting the fuck out. Your stop might be at 100, or maybe you'd locked in 50 pips. The point is that longs are now nervous, and bids will be hard to find below 100. Most people are probably prepared to take a chance buying a dip into around 100 (I know I am), but not below there.
Below there are stop losses. Hundreds of millions of them.
So that's my take on things. I'm not saying the world will end this week, but we all know that what goes up very quickly when there isn't a good reason to do so, usually comes down pretty quickly as well.
Others would argue with my fundamentals. I've seen articles saying that the rise in stocks can be attributed to companies holding on to cash reserves and paying high dividends, because they are worried that the recovery might not come. When they finally do see it coming, they will start spending that cash on growing and employing people - so maybe stocks are leading the global economy in this recovery.
I say horse shit. Demand has to precede supply, and right now the powerhouses of the global economy have more supply capacity than there is demand for. We have got into this situation because corporate profits have stayed very good during the last few years, but household incomes have fallen in real terms, and the average consumer is no better off, even though central bank governors are starting to say otherwise.
You and I are still earning far less money than we should be, and spending proportionally more and more of it every year as wage growth struggles to keep up with inflation, which is already low in most developed countries. Corporate profits continue to do well, but this money is not being spent in the real economy and used to create jobs.
I'm not going to go all marxist here for my last thoughts, but it is important to realise that there is a continuing and growing concentration of wealth in the hands of the few. They might say that they are the job creators, and many of them are. But for the most part they are the wealth hoarders. That money goes into things that cause the economy to appear to be growing, but do not actually grow the real economy - company stock, large assets, investments.
They also buy things from companies that are seeing their profits grow faster than the wages they pay. Where a dozen board executives get huge bonuses and a hundred thousand shareholders see their balance sheets grow, the people who are actually spending their portion of that company's profits (the employees) don't have any more money to inject into the economy than they did last year.
These market forces are going to collide sooner or later. Either:

• Wage growth and unemployment suddenly improves, and the middle and working classes will actually be able to provide the demand that the supply side needs to see to continue growing, or
• the middle classes will start to spend money they don't have as a result of stimulus programs, which will kick in as central banks realise that they are failing to restart economies through austerity. This will sustain the recovery and it might work, but sovereign balance sheets are already stretched ridiculously far, or
• stocks will crash before that happens, causing a resurgence of widespread unemployment.

I'm not saying it will happen this week, or at all. All I'm saying is that stocks are rising very quickly on not much at all. There are precedents for this throughout history, and it never ends well. When you hear hoof beats, don't think zebras.
TL;DR Forecast is choppy, with a light chance of apocalypse

This will be a wall of text, but with pictures! I'm going to attempt to analyse USD/JPY, EUJPY, GBP/JPY, AUD/JPY, NZD/JPY, CAD/JPY, CHF/JPY, and ZAJPY. I'm really interested in your feedback, especially from the guys who are good with the supply/demand levels :)
A thought occurred to me while I was regretting eating McDonalds for dinner last night. When there are strong directional moves by one pair, associated pairs and crosses will move in the same way - especially if that move is the result of only one of those currencies strengthening or weakening. Often however, its the associated pairs that will offer a cleaner technical setup.
The purpose of this post is to identify a Yen pair that has the greatest upside potential in the event of the Yen weakening again. It might take a long time to get back up to the highs, so I want a currency with a really good outlook. If you think there is a strong case for a continued move to the downside, I really want to hear it as well.
Likewise on the last big leg up in USD/JPY, when we cracked 100 and then some, I actually lost out a little bit by spreading my trades across EUJPY, USD/JPY and GBP/JPY - the rationale being that if the Yen weakened rapidly, the risk trades would do the best against them rather than the dollar (which normally has quite muted moves whenever the Yen weakens rapidly). Except in that case it was the dollar strengthening, and the Yen fought back against the Euro and Pound.
So I got thinking: one of these pairs must have the cleanest technicals, the simplest fundamentals, and offer the best risk:reward potential for a trade to the upside - especially since it's the BoJ in 2 days.
I'm going to go through the suspects one by one, and just do some basic technical and fundamental analysis. I will only be using trendlines, fibonacci levels and the 50 & 100D SMAs.
For the purpose of simplicity I have ignored price data pre mid-2012, as most of those levels are gone now. Except the one we're at now - in almost all pairs the current level has been a significant pivot, dating back a few years.
Starting with /forex's most hated pair:
USD/JPY
http://i.imgur.com/W8DRrkU.png
Technicals 100 is once again a significant obstacle, and I expect sideways action between here and 96, if the selloff doesn't continue. The Yen might weaken again very sharply, but so also might the dollar. We have a fairly clear and convincing trendline break, and I'm regretting getting in long. We might have a low in place, but we also might not. We are currently supported at a critical level by the 100DMA and the 0.23 fib, as well as a known demand level. A break lower here targets 95 and then 93.50.
Fundamentals We will need a dollar rally as well as a Yen rout to climb quickly, and I'm unwilling to play only one and not the other. Without signs that the US will slow easing and Japan will at least keep it up, we do not have the fundamental driver to push very much higher.
Trades I'm not sure the best trade is to be found here, in either direction. Long seems to be the way forward, but we need some convincing. Otherwise it's sell rallies into 100.
EUJPY
http://i.imgur.com/ETkvc23.png
Technicals If we're looking for the best technical setup for a long, we might have it here. We've spiked through this pair's most significant demand level, bounced off the 100DMA, and closed above the trend line. It's a fairly simple picture.
Fundamentals I am slightly concerned by the Euro's lacklustre performance against everything besides the dollar. EUGBP is down, EUAUD didn't add 200 pips in the last session, etc. That said, I think that the Eurozone is going to start impressing people soon, as long as they can avoid another sovereign debt crisis. Which they won't. It will happen and when it does it will suck this pair down the suck hole faster than USD/JPY ever could.
Trades The problem here is that the bottom of Friday's hammer is 280 fucking pips away. I don't know about you guys but I don't like setting stops 280 pips away, especially with limited upside potential right now. I would look for a higher low to form first before getting in long - maybe around 128.50.
A new Eurozone crisis, continued Yen strength and a break of Friday's low could send this pair screeching to a spike low of 115 in a matter of minutes, in my opinion.
GBP/JPY
http://i.imgur.com/gv5WVy5.png
Technicals Another good long tech setup. A Head and Shoulders pattern was broken and completed on Thursday, with a close above the trend line.
Fundamentals The UK economy is looking better than it has all year, and its recovery is looking set to overtake the Eurozone's. However, Mark Carney comes in next month and we might be staring down the barrel of more dovish MP. This could destroy Cable's fragile recovery, which is showing signs of weakness at a previous pivot level and significant fib.
Trades Going long here seems like the obvious choice. A stop would need to be quite wide, but below Thursday's low would probably be sufficient, as we could probably see Friday's low as a bizarre volatility spike that had very little to do with the Pound or the Yen. Mind you that is still 160 pips away, so either wait for a dip or keep your position size very small.
AUD/JPY
http://i.imgur.com/EDZigYP.png
Technicals This is not a chart that screams, "go long", and it makes me worry about the other Yen pairs' upside potential. It could well be that the next significant move lower starts here, as the Aussie continues its collapse. Currently holding at the 50% fib and 200DMA, but any trendlines are long gone and we can expect price consolidation as long as we do not go lower.
Fundamentals China released a lot of bad data this weekend, some neutral data, and no good data. The Aussie and Kiwi underperformed against the USD this week, despite being given a massive head start. There is huge scope for further easing, and this currency is strictly in "sell rallies" mode. A gold and commodities recovery is the only thing that will save the Australian dollar.
Trades I don't like it either way. As has been said on this sub before: what a c*nt of a pair.
NZD/JPY
http://i.imgur.com/5pEnfhq.png
Technicals An even uglier picture than AUD/JPY, but we have spiked off the 0.38 fib and closed above the 200DMA, if that means anything. A break of Friday's low could get extremely bad very quickly, but this pair isn't known to really motor.
Fundamentals The Kiwi actually performed worse than the Aussie this week, closing at the lows and through significant support, while the Aussie staged a late rally. It's hard to be bullish either of these currencies. This is purely due to the commodities slump. Despite tightening MP, the Kiwi looks particularly vulnerable as the entire bloc collapses.
Trades I'm not sure the best trade is here, but if Yen strength continues then selling a rally into 77.50 looks like a good play.
CAD/JPY
http://i.imgur.com/AdcnwkO.png
Technicals 97.50 is the bull/bear line here and we're well through it, so we would need a close above here to be really bullish. Price bounced off the 0.23 fib and 100DMA, and 97.50 once again offers the most serious upside resistance. A break lower here targets 91.50
Fundamentals The Canadian dollar staged a late rally on Friday on the back of ridiculously good employment data. USD/CAD is now at descending channel support and the 50% fib of the recent rally, so I would be careful either way. Otherwise I don't know much about the Canadian fundamental picture, but I believe they're happy to see Carney go.
Trades Not really sure what to do here. If anyone is more familiar with this pair, let's hear it. Otherwise I'm gonna stay out of this one.
CHF/JPY
http://i.imgur.com/4vvoI2o.png
Technicals CHF/JPY was actually the biggest gainer in % terms when Japan first announced its QE program. Since then it hasn't done much. Trendline is gone but we've bounced off the 100DMA, which has provided support before. We need above 105 to get really bullish here. There is a very long broken wedge which technically targets 93.
Fundamentals I expect the Swiss Franc to weaken if the stock market recovers from here. If it doesn't, and we see a continued decline in stocks, the Yen will strengthen more than the Franc, so we'll probably head down some more. Overall it doesn't look good for this pair. If USD/JPY recovers sharply, USD/CHF probably will as well, so gains here will be muted. If on the other hand gains are driven by fundamental Yen weakening in response to more QE, would could see a large move to the upside.
Trades Buy on a break and hold of 105 only.
ZAJPY
http://i.imgur.com/SYiZZpd.png
I just put this up for the lolz. Something has gone horribly wrong for South Africa, so if you think the Aussie's had it bad...
Technicals A break of the 50% fib gives us real cause for concern here. If the Rand continues to weaken as a result of gold weakening, we could see the rally fully retraced. Expect consolidation.
Fundamentals The Rand performed worst of all the commodity currencies, as gold continues to slide (it recently broke out of its consolidation to the upside, only to crash on Friday to confirm a break lower again, targeting $1350). When USD/JPY collapsed on Thursday, USD/ZAR barely blinked. I've been trading it to the upside on dips, but 10.00 seems to be capping moves for now. If gold does not recover sharply, the South African economy is going to suffer very badly.
Trades F that noise. Buy USD/ZAR on a break of 10.25, or sell it on a break out of consolidation.