AUDJPY Correction Setup (Sept 10, 2014)

However, price appears to be retreating as traders booked profits and sentiment appears to be turning for the Australian dollar.

With that, price could pull back to the broken resistance zone, which might act as support from now on. This is in line with the 50% to 61.8% Fibonacci retracement levels, which might keep any losses in check. A shallow retracement might last until the 38.2% level only, which is near the 97.00 major psychological support.

Stochastic has already reached the oversold region, indicating that selling pressure is weakening. When the oscillator moves out of the oversold zone and starts heading north, price could resume its climb and possibly test the previous highs near 98.75. Stronger buying momentum might even lead to the formation of new highs beyond 99.00.

Weak Japanese data could keep yen gains at bay, as the BOJ is being pressured to increase stimulus for the economy. Meanwhile, Australia is also showing a few signs of weakness, along with China. The recent dip in Chinese imports spells downbeat prospects for Australia’s export sector, which accounts for a huge part of overall economic growth.

The event risk for this trade is the Australian jobs release tomorrow and the Chinese CPI. Earlier today, Japanese core machinery orders and PPI already came in below expectations.

By Kate Curtis from Trader's Way