At present we are focused on the "Trump trade" in terms of a stronger USD which has worked well but what if it were to end and we move to risk on? The JPY would probably correct to the upside against the US but risk currencies would correct more and it's worth looking for an upside breakout in AUD/JPY...

We would recommend being prepared for a dip in the Trump trade by looking to buy AUD/JPY - even if USD bUYING continues on the "Trump Trade" the JPY could still move lower on the AUD.

If we look at the JPY it's not done well in risk-off as the Trump trade took hold in October with other major currencies appreciating on it – a move to risk on would see an accelerated sell off the JPY..

Fundamentals

The big fundamental against the JPY is its yield at just 0.25% which is by far the lowest of any G7 currency. Unlike the market, we dont see an interest rate rise coming at the next meeting and if it does, it's discounted and the rate rise would be minor.

The AUD is a sensitive currency to risk on and risk off but has done well on the JPY in a risk-off market. If we see an upside breakout, this could trigger in our view trigger follow on buying up to 106.00 as we note on the chart below. We also have a decent yield at 4.35%

Technical Analysis

Our view of the major levels of support and resistance to look out for on the chart below.