AUD/JPY awaits range breakout, eyes China PPI

• AUD/JPY has been restricted to a narrow range this week.
• Focus on China PPI (reflation story). Better-than-expected number could yield upside break in AUD/JPY.

AUD/JPY is trading this week in a narrow range of 87.00 to 87.70 levels.

On a daily closing basis, the range is smaller as the dips below 877.05 (38.2% Fib R of June/Sept. rally) have been short lived, while the bulls have failed to hold above the upward sloping 100-day MA (now at 87.53 levels).

Currently, the cross is trading at 87.50 levels, having clocked a daily high/low of 87.52 and 87.35 levels, respectively.

Eyes China PPI

China producer price index (PPI), also known as factory-gate prices, is seen cooling to 6.6 percent y/y in Oct.  vs. previous 6.9 percent. A better-than-expected PPI could put the reflation trade back on investors' radar. Thus, AUD, being a commodity currency, may strengthen.

Meanwhile, the Japanese Yen stands to lose if the upbeat China PPI yields a risk-on rally in the equity markets.

On the other hand, the AUD/JPY cross may take a hit if the China PPI falls more than expected.

JPY may find bids on the hawkish BOJ summary of opinions

The BOJ summary of opinions released today said that additional monetary easing would have more demerits than merits. The statement contradicts popular opinion that the central bank is considering more stimulus to support demand ahead of the scheduled tax hike in 2019. Thus, the Yen may find bids, leading to an exaggerated drop in AUD/JPY (after weak China PPI).

AUD/JPY Technical Levels

A break above 87.53 (100-day MA) would expose resistance at 87.70 (Nov. 7 high) and 88.00 (zero levels). On the downside, breach of support at 87.32 (5-day MA) could yield a sell-off to 87.00 (psychological support) and 86.69 (Oct. 31 low).