Market update: AUD surges on unexpected inflation, nears key levels

The Australian dollar has turned higher against its US counterpart over the week as a positive risk sentiment backdrop, and higher-than-forecast domestic inflation gave the currency a boost. This week’s rally has now run into resistance off a cluster of simple moving averages, currently between 0.6502 and 0.6533 and these will need to be cleared to allow the pair to move higher.

The recent move has produced five higher lows and higher highs in a row, a bullish setup, while the CCI indicator shows this week’s move has taken the pair into neutral territory, from a heavily oversold position. A move higher - above the three moving averages - opens the way to 0.6650. Support at just under 0.6350 and then between 0.6270 and 0.6287.

AUD/USD daily price chart

AUD/USD: traders remain bullish, but recent shifts suggest potential reversal

Retail trader data reveals that 61.56% of traders are currently net-long on AUD/USD, with a ratio of 1.60 long positions for every short position. This indicates a bullish sentiment among traders. However, the number of net-long traders has decreased by 6.42% since yesterday and 27.26% since last week. In contrast, net-short positions have increased by 9.77% and 66.35% over the same timeframes.

While the contrarian view suggests that the net-long position could lead to further price declines, the recent shifts in sentiment signal that a potential reversal to the upside may be on the horizon for AUD/USD, despite traders remaining net-long.

The Bank of Japan (BoJ) will announce its latest policy decision overnight, and while all monetary settings are set to remain untouched, the accompanying Quarterly Report may well give some hints to future policy moves. The Japanese yen remains weak and will remain that way until the market is convinced that BoJ is going to move in and prop up the currency with actions, not words.

AUD/JPY is back at levels last seen in November 2014, and the daily chart shows a year-long pattern of higher highs and higher lows as the yen wilts against a robust Australian dollar. The CCI indicator shows the pair in extreme overbought territory and this may temper any further short-term move higher. Unless the BoJ makes a stance, AUD/JPY is set to move higher.

AUD/JPY: traders remain bearish, but recent shifts strengthen bullish contrarian view

Retail trader data reveals that only 18.85% of traders are currently net-long on AUD/JPY, with a short-to-long ratio of 4.30 to 1. This indicates a strong bearish sentiment among traders. However, the number of net-long traders has decreased by 18.81% since yesterday and 49.69% since last week. In contrast, net-short positions have increased by 9.29% and 22.15% over the same timeframes.

As contrarian investors, this net-short position suggests that AUD/JPY prices may continue to rise. The increase in net-short positions and the decrease in net-long positions further strengthen our AUD/JPY-bullish contrarian trading bias.

AUD/JPY daily price chart

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