AUD/JPY retreats from 94.00 towards lows 93.00s on weak China’s PMI, risk-off mood

• The AUD/JPY failure at 94.00 left the pair adrift to solid selling pressure.
• In March, China’s PMIs dropped below the 50-mark, indicating that its economy is slowing.
• AUD/JPY Price Forecast: A double-top and negative divergence between price action-RSI threaten to push the pair towards 87.00.

The Australian dollar gave back Tuesday’s gains amidst a risk-aversion environment in the financial markets as global equities fell while safe-haven peers rebounded. Also, the drop in China’s PMIs under the 50-expansion/contraction line signals that the second-largest economy is slowing as it goes through another Covid-19 outbreak. At the time of writing, the AUD/JPY is trading at 93.13.

Risk-aversion and weak China data threaten to slow the global economy

US equities closed in the red as the Federal Reserve hinted in its March minutes that Quantitative Tightening (QT) would start by May and reduce its balance sheet by $95 billion a month. Furthermore, the FOMC minutes signaled that most participants were looking for a 50 bps rate hike to the Federal Funds Rate, but the Russian invasion of Ukraine kept them from doing it so.

On Wednesday’s Asian session,  China’s Caixin Services PMI for March came at 42.0, lower than the 53 estimated, and trailed February’s 50.2 reading. The services sector contracted on the recent Covid-19 outbreak, which spurred lockdown measures, falling at the quickest rate since February 2020.

The Australian economic docket would reveal February’s Balance of Trade, expected to rose by a A$12 B surplus. Also, Building Permits for February, estimated at 43.5%, would offer some impetus to AUD/JPY traders. Coincident Index and Leading Economic Index for February will be featured on the Japanese economic docket.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY is upward biased, but failure at 94.00 exposed the pair to selling pressure. Additionally, momentum indicators like the Relative Strength Index (RSI) at 72.05 made a successive series of lower highs, contrarily to AUD/JPY price action, with subsequent series of “quasi” same highs, forming a “double-top” chart pattern. Moreover, a negative divergence between price action and RSI would send the pair lower.

The AUD/JPY first support would be 92.26. A decisive break would expose the 91.00 mark, followed by the “double-top” neckline at 90.76.