AUD/JPY regains 85.00 as market fears abate

• AUD/JPY jumps back to gains after snapping 10-day uptrend the previous day.
• Risk appetite dwindles as inflation-linked fears battle US stimulus hopes, China news.
• Japan’s National CPI ex-Fresh Food marks first increase in 18 months, Aussie PMIs came in mixed.
• Risk catalysts are the key for fresh direction, Treasury yields should be observed closely.

AUD/JPY justifies its risk barometer status while flashing 0.16% intraday gains near Friday’s European session. The cross-currency pair prints 85.22 by the press time as sentiment-positive headlines challenge the previous risk-off mood.

Among the key positives are the headlines concerning China’s troubled real-estate firm Evergrande. The Hong Kong-listed firm’s ability to pay a bond coupon and hopes of getting its assets sold, despite prior rejection from Hopson, challenge the risk aversion wave of late.

On the same line was US President Joe Biden’s optimism over striking a deal to pass major infrastructure and social spending measures, as well as chatters surrounding the Sino-American phase one trade deal.

Also favoring the bulls is Melbourne’s unlock after 262 days of the coronavirus-led activity controls.

On the contrary, inflation chatters and US President Biden’s readiness to defend Taiwan from China probe the optimists.

Amid these plays, US 10-year Treasury yields ease to 1.685%, up one basis point (bp), following the previous day’s jump to a five-month high of 1.70%. Also portraying the cautious in the market is the mildly offered S&P 500 Futures and pressured US Dollar Index (DXY) prices.

Talking about data, Japan’s National CPI ex-Fresh Food prints 0.1% figure to register the first positive figure in 18 months while the Jibun Bank Manufacturing PMI for October also rose past 51.5 prior and 51.4 expected to 53.0. On the other hand, Australia’s Commonwealth Bank PMIs came in mixed for October due to weaker than expected Manufacturing PMI but Reserve Bank of Australia (RBA) Governor Philip Lowe kept citing inflation fears in his latest speech.

 Moving on, AUD/JPY traders should stick to risk catalysts for fresh impulse amid a light calendar at home. However, US Treasury yields may probe the bulls on breaking 1.70% key resistance.

Technical analysis

Rebound from 5-day EMA, around 85.10 by the press time, needs validation from March’s top of 85.45 before challenging the yearly peak, also highest since February 2018, near 86.25.