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Markets have all but come to a halt ahead of this year’s G20 summit, where eyes firmly fixated on the Trump-Xi meeting, as it could mark the difference between risk-on and risk-off next week.

 

It’s likely that larger market moves could materialise if Trump and Xi fail to reach an agreement on trade. That said, market could also breathe a sigh of relief if they strike a deal which could provide tailwinds for risk-assets next week. Either way, we may have gaps to contend with which makes it debatable as to whether one wants to hold positions over the weekend.

 

For currency traders the Yen and Swissy pairs are likely to see the most action, although we’ll focus on AUD/JPY today as it is widely regarded as the currency barometer of risk.  After gaining over 1.5% this week already, markets appear to be favouring a successful meeting, yet we could see nasty reversal if expectations are not met.

 

Looking at the daily chart we can see bullish momentum has been the dominant force since the hammer low at 78.56. Having recently broken out of a corrective channel the bias is for a bullish continuation, although a Rikshaw Man Doji warns of a hesitancy to break higher.

 

Still, with the market currently under compression it provides clear breakout levels for two scenarios over the near-term; a break above 83.26 signals a bullish continuation, whereas a break beneath the Doji low (82.74) signals a near-term reversal. Although, as the trend remains bullish above 81.19, we’d see a downside break as more likely to be part of a correction as opposed to a reversal from its highs.

 

For now, we’re focusing on the 83.94 and 84.54 as interim resistance levels, with a break of the latter opening-up a run for the Jan low at 87.21. Interestingly, if we’re to see a repeat of the first leg from the 78.56 low, it could be trading at those dizzy heights in 2-weeks.

Matthew Simpson CFTe,Senior Market Analyst (Asia)