Judging by the state of play in the emerging market currencies, it’s little wonder that the AUD/JPY has been performing so badly. Brushing aside the domestic affairs in the Australian economy and its implications for a more dovish RBA, this chart, which factors in equally weighted proportion the IND, IDR , ASR, TRY, RUB, CNY, and ZAR as a rough indicator of the sentiment towards EM, suggests a macro bearish picture in the AUD/JPY 0.18% .
As illustrated in the 2nd window of the chart, the inverse correlation remains very strong, with the recurrent cycles of pergences opportunities one can potentially tap into via lower timeframes to find trades. It’s important to note that the 100 MA in the H4 chart has been acting as a predictive indicator of periods of consolidation in the chart before the next implosion in the deterioration in the value of EM currencies. Every time the chart has touched the 100MA amid a high AUD/JPY, it represented a major short opport.