AUD/JPY - Bearish engulfing candle, Vols hit 7-month low

• Monday's bearish engulfing candle signals the rally from the low of 87.25 (Oct 10 low) may have ended.
• Risk reversals at one-month high, Vols hit 7-month low

AUD/JPY fell from the high of 89.08 to 88.43 levels on Monday. The price action engulfed Friday's candle.

A negative price action today would add credence to Monday's bearish engulfing candle and could open up downside towards the 50-day moving average level of 88.62.

Options market signal dips could be short lived

• The one-month 25 delta risk reversals rose to -1.525; the highest level since Sept. 21. It indicates falling demand for Put options.
• Meanwhile, one-month ATM option volatility gauge hovers at 7.95; the lowest level since mid March.

Falling demand for bearish bets (Puts) and a drop in volatility is usually accompanied by an uptick in the underlying (AUD/JPY).

AUD/JPY Technical Levels

Currently, the cross is trading at 88.60 levels. A break above 88.74 (Oct 5 high) would expose Monday's high of 89.08. Only an end of the day close above the same would revive the bullish move from the low of 87.25 (Oct 10 low) and shall open doors for 90.00 (zero levels).

On the downside, a break below 88.43 (previous day's low) could yield a sell-off to 87.92 (Sep 29 low) and 87.85 (50-DMA).