Is AUD/JPY pointing to Brexit-led risk-off?

AUD/JPY, a risk barometer in Asia, is trading 0.38% lower around 85.60 levels. The drop in the currency pair is usually taken as a negative sign for the risk assets given the AUD’s close association with China and JPY’s status as a safe haven currency.

Risk-off ahead of a merely a correction in AUD/JPY?

The sharp rally in the AUD/USD over the past two weeks has left the currency overbought on the intraday and daily time frame charts. Consequently, the drop in the AUD/JPY cross could pe partly blamed to a technical correction.

Meanwhile, the heightened odds of hard Brexit and the resulting losses in the S&P 500 futures also strengthened the bid tone around Yen. Thus, the drop in the AUD/JPY cross could also be an early sign the risk assets could remain under pressure during the day ahead.

AUD/JPY Technical Levels

A break below 85.38 (5-DMA) would expose 85.00 (zero figure), under which the losses could be extended to 84.65 (Dec 19 low). On the higher side, a convincing break above 86.28 (Fri’s high) would signal continuation the rally from Dec 29 low of 83.74. Major resistance is seen at 86.62 (Dec 12 high) and 0.87 (zero figure).