We have been keeping a close eye on the Australian dollar over the past few weeks and AUD/JPY continues to grab our attention.

Two weeks ago, we warned about the potential for AUD/JPY fall below the 200-day moving average. When it did, it immediately fell 300 more pips before finding support at the quadruple bottom at 76.35-50. It has since rebounded back above the 200 dma to 80 cents.

The move higher has relieved short-term oversold conditions and the overall technical set-up remains bullish for the Australian dollar. We would have a very difficult time going long here, however. A clear quadruple bottom is not something that you see often and it’s usually a sign that a further sustained rally is failing. What has is saying that the chart still looks bullish is the fresh high at 86.50 after the late-November test of 76.50 (a 1000 pip rally).

We don’t want to fight the long-term trend of higher highs in AUD/JPY and we have been impressed by the Australian dollar’s ability to rebound back above the 200 dma. There is no reason to think the AUD can’t go higher in the short-term. At this point, however, we see a rally above 86.50 as unlikely and that will trigger a mixed, or negative technical picture.

We do expect this pair to eventually fall back below the 200 dma and below 76.35. At that point we will be agressive sellers as we could see this pair quickly falling to 67.00.