On Monday, the Politburo announced that China will adopt an "appropriately loose" monetary policy in 2025, the first easing of its monetary stance since the Global Financial Crisis. The focus will shift towards unconventional counter-cyclical adjustments aimed at stimulating consumption and enhancing domestic demand.
Following this announcement, Chinese stock indices experienced a significant rally, with Hang Seng futures climbing over 8% from their Monday low, while China A50 futures marked a gain of over 6% from the weekly low. The yuan remained stable, keeping USD/CNH below the 7.3 threshold, which in turn allowed AUD/USD to rebound from its 2022 trend support level.
During this risk-on environment, AUD/USD and NZD/USD emerged as the strongest major currencies, while the Japanese yen weakened. This dynamic suggests that we may see further gains for AUD/JPY and USD/JPY in the short term, although a broader decline may still be anticipated afterward.
Key Economic Events (AEDT)
The Reserve Bank of Australia is not expected to make any rate cuts today, even as speculation grows that they might lower rates three times next year, starting in April. The RBA will likely wait for the release of tomorrow's employment and quarterly CPI data in January before making any decisions. Investors should pay attention to whether the RBA acknowledges last week's disappointing GDP figures, as such a statement could potentially shift expectations for a rate cut into Q1 and reverse some gains seen in AUD/USD.
- 10:50 – JP GDP external demand (Q4), money supply (Nov)
- 11:30 – AU business confidence (NAB)
- 14:00 – CN trade balance (Nov)
- 14:30 – RBA interest rate decision (no change expected)
- 14:35 – JP 5-year JGB
- 17:00 – JP machine tool orders (Nov)
- 18:00 – DE CPI
- 22:00 – US small business optimism (Nov)
AUD/JPY Technical Analysis
Two weeks ago, a bearish outlook was presented for AUD/JPY based on specific price action patterns observed on the weekly chart. The anticipated bearish move occurred more swiftly than expected, manifesting within 24 hours. Current market indicators suggest a peak has been reached, possibly heading toward the August low. A break below this level could target the 86 handle, aligning with the 2021 high and the 2023 low.
However, there is potential for a bullish mean reversion, indicated by a recent bullish engulfing candle forming around the weekly volume point of control (VPOC). Traders could look to capitalize on dips within Monday's trading range, targeting the 20-day EMA (98.42) or the 50-day EMA (99.21), near the initial breakout level at 99.44.
Bears may prefer to monitor for signs of a swing high on lower timeframes around key resistance levels, positioning themselves for a subsequent downward move once momentum signals align with the overall bearish trend on the weekly chart.
USD/JPY Technical Analysis
As noted last Wednesday, a potential bounce for USD/JPY was expected, and the pair has already reached the weekly pivot-point target of 151.3. The 152 level appears to be attainable, as prices currently sit approximately 70 pips below it. However, recent price movements raise the possibility that another bounce could exceed the 152 mark before USD/JPY begins its next downward phase.
A higher low was established on Friday, forming a Rickshaw Man doji exactly at the August high and October VPOC. Bullish momentum was observed on Monday, and it is worth noting that prices are now testing the upper boundary of last week's spinning top doji.
- Similar to AUD/JPY, bulls may look for buying opportunities on dips within Monday's trading range, anticipating a further rise. A break above 152 could direct focus towards the 153.28 low.
- With the daily RSI (2) nearing overbought territory, bears may look for indications of a swing high forming around the 152 or 153-153.28 levels, anticipating a potential reversal to the downside.
