FOMO Friday: AUDJPY On The Rocks

Return of COVID Fears Another week is coming to an end, bringing us just as close to the end of the year. It was a week of uncertainty for most, due to the return of COVID fear created by the Omicron variant. In markets, it has been a bit of a difficult week as traders await further details on the new strain. This created mostly worrying conditions, especially with the NFP sitting at the top of the week as well. However, as always, there were moves and there were winners and losers. Talking to traders this week about the market action we saw seems to have been the main focus on the over 2% drop we saw in AUDJPY. So, let’s take a look at what caused the move and, as always, did you catch it? Well done, right? It’s always next week! What Caused the Move? The nearly 200 pip drop in AUDJPY this week was a very clear move in response to the current news flow we are seeing around the new COVID variant. Considering AUD’s status as a risky currency (linked to commodity prices and global trade) and JPY’s safe harbor status (used as a store of value during times of uncertainty), AUDJPY was almost guaranteed to sell this week. In fact, the pair is often an excellent barometer for general risk sentiment in the market as a result of the divergence between the two currencies. AUD Lower On Risk AversionDo, with risky assets under pressure this week due to recent COVID fears, AUD has been seen trading. lower. Fears that the virus would lead to a recent global wave and, most importantly, possibly require a return to nationwide incarceration were a major blow to risk sensation. Although initial knee sales in risky assets have largely declined at present, there is still the risk that scientists would confirm that the variant is more deadly than previous strains, selling will again gain momentum. As long as this uncertainty remains, AUD is likely to remain under pressure soon.JPY Safe Haven DemandSimile, this same uncertainty, which weighs on risky assets, instead leads to demand in JPY as a result of safe inflows. Given that the Fed has just begun to decline and is expected to continue tightening, it seems that JPY is a preferred safe haven, over gold, for now, which adds extra support. Again, unless there is a big change in storytelling around the new COVID variant, this dynamic is likely to continue, keeping AUDJPY under pressure near term.Technical ViewsAUDJPYSelling in AUDJPY has seen the market break below the 80.69 level this week. With both MACD and RSI firmly bearish, and with the retail community holding an almost 70% long position, there is plenty of room for the current sell-off to continue to 79.57 and 78.44 beyond.

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