Forex Market: AUD/JPY trading forecast for November 2nd

Friday’s trade saw AUD/JPY within the range of 85.38-86.30. The pair closed at 86.12, soaring 0.55% on a daily basis, while marking its first gain in the past four trading days and also the most considerable one since October 23rd, when it went up 0.76%. The daily low has been the lowest level since October 6th, when a low of 85.11 was registered. In weekly terms, AUD/JPY lost 1.73%, while marking the steepest weekly drop since the week ended on September 27th, when the pair depreciated 1.83%.

On Monday (November 2nd) AUD/JPY trading may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Australia

Performance of Manufacturing Index

At 22:30 GMT on Sunday the Australian Industry Group (AIG) is expected to announce the results from its survey on short-term and intermediate-term conditions in the sector of manufacturing in Australia during October. 200 manufacturers provide their assessment of overall business situation in the sector in terms of employment, new orders, output, prices and inventories. The seasonally adjusted Performance of Manufacturing Index (PMI) for Australia came in at a reading of 52.1 in September. It has been the highest level since May 2015, when a reading of 52.3 was reported. Values above the key level of 50.0 are indicative of optimism (expansion in activity). An improvement in the value of this indicator would have a moderate bullish effect on the Australian dollar.

MI Inflation forecast

At 23:30 GMT the same day the University of Melbourne will release its estimate of inflation in Australian economy as of October. Annualized inflation estimate for September pointed to a rate of 1.9%, or the highest since November 2014, when an annual rate of 2.2% was projected. If inflation rate rises, this adds to the case of an interest rate hike by the Reserve Bank of Australia (RBA), which usually has a bullish effect on the national currency. It is so, because assets, offering higher yields tend to attract more international investors, who will look to buy the domestic currency and respectively, its demand will be spurred.

Japan

Manufacturing Purchasing Managers Index

At 2:35 GMT on Monday Markit Economics is to release the final data on manufacturing activity in Japan regarding October. The preliminary value of the respective Purchasing Managers Index (PMI) was reported to have risen to 52.5 in October from a final reading of 51.0 in September. The latter has been the fifth consecutive month, when the indicator inhabited the area above the key level of 50.0, which is the divide line between pessimistic and optimistic opinions.

The PMI is based on a survey of 400 companies, operating in the Japanese industrial sector. The Manufacturing Purchasing Managers Index is comprised by five individual sub-indexes with the following weights – New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%), with the Delivery Times index inverted, so that it moves in a comparable direction.

In case the final PMI for October confirmed or even outpaced the preliminary reading, thus, further distancing from the 50.0 level, this would have a moderate-to-strong bullish effect on the national currency.

Correlation with Major Pairs

Taking into account the week ended on November 1st and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

AUD/JPY to AUD/USD (0.9640, or very strong)
AUD/JPY to NZD/USD (0.7232, or strong)
AUD/JPY to EUR/USD (0.6819, or strong)
AUD/JPY to GBP/USD (0.1060, or weak)
AUD/JPY to USD/CAD (0.0820, or very weak)
AUD/JPY to USD/JPY (0.0262, or very weak)
AUD/JPY to USD/CHF (-0.7262, or strong)

1. During the examined period AUD/JPY moved strongly in one and the same direction with NZD/USD and EUR/USD, while moving strongly in the opposite direction compared to USD/CHF.

2. AUD/JPY moved almost equally in one and the same direction with AUD/USD during the week.

3. The correlation between AUD/JPY and GBP/USD was insignificant during the week.

4. AUD/JPY moved almost independently compared to USD/CAD and USD/JPY during the period in question. The correlation between AUD/JPY and USD/JPY was practically non-existent.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the Monday pivot levels for AUD/JPY are presented as follows:

Central Pivot Point – 85.93
R1 – 86.49
R2 – 86.85
R3 – 87.41

S1 – 85.57
S2 – 85.01
S3 – 84.65

By using the traditional method of calculation again, the weekly pivot levels for AUD/JPY are presented as follows:

Central Pivot Point – 86.50
R1 – 87.63
R2 – 89.13
R3 – 90.26

S1 – 85.00
S2 – 83.87
S3 – 82.37