This week I will explain a short AUD/JPY setup currently on my watchlist.
Long term View
Last week we saw a break of the year to date high with a weekly close below this significant level. I call this a swing failure pattern and it's an indication that smart money have most likely entered the market. Due to the level's significance, there was a lot of liquidity sitting above 95.742. We tapped into this liquidity, triggering a bunch of shorts and closed back below it. This pattern signals high probability of further downside.
Short term view
Zooming into the hourly chart, I spotted a nice supply zone at 95.222. This lines up nicely with a 61.8% retracement of the current down move. I do have a limit sell order in place at this level, with a stop above the zone and a target at 93.766, which is last week's low. Question is if we're going to get a deep enough retracement with AUD/JPY in a free fall currently. But if we do, high confidence setup in my book.
Summary
I have my limit order in place but will be actively looking for new short setups on this pair. In case we don't pull back to the supply zone. AUD/JPY is highly correlated with the US stock market and with equities in a free fall, following higher than expected CPI figures last week and increased expectations of significant rate hikes, further downside here is expected.