Nomura recommends going long AUD/JPY on better risk backdrop, RBA downside factored inpetar skakalov
Nomura strategists are recommending investors to go long AUD/JPY
The argument behind their view is that US election risks are abating and the risk outlook is improving, with “reduced risk of unpredictable US tariff actions”.
That should bode well for Chinese assets, which given historical correlations, should benefit the Australian dollar as well. Adding that RBA easing and QE are fully “in the price”.
The firm also says that the latest developments from yesterday i.e. vaccine story could propel further gains in risk assets and reduces near-term downside risk for USD/JPY.
Further noting that Japan’s GPIF has scope to buy more foreign bonds if yen-crosses dip, and this could help to limit the downside in AUD/JPY as well.
Looking at the chart, the pair has broken back above its 100-day MA (red line) in trading yesterday and that sees buyers establish a more bullish bias.
However, there is some familiar resistance just below the 77.00 level around 76.75-87 from the highs seen back in June and July this year. Further resistance is then seen closer towards the year’s high @ 78.46.
Nomura is recommending a trade via a two-month bullish call spread – strikes @ 78.25 and 79.75 respectively. Hence, they are seeing potential for the upside to extend towards 79.75 on a break above 78.25 (the highest close this year was @ 78.12).
Source: Technical analysis