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AUDJPY Slumps as US-Iran Escalation Up Risk-Off Sentiment

AUDUSD Australian dollar

Risk-off sentiment returned to the financial markets on Friday after the Pentagon confirmed that a US drone strike had killed a top Iranian commander, triggering a sell-off in the AUDJPY pair.

This latest US-Iran escalation placed several commodity currencies such as the Australian Dollar on offer, while triggering safe-haven demand for the Japanese Yen and the US Dollar, causing the AUDJPY to drop nearly 106 pips on the day as at the time of writing.

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Technical Outlook for AUDJPY

The AUDJPY pair is seen to be trading within the confines of a rising wedge on the daily chart, with price action pushing towards the lower border of the wedge (the initial price support). The next downside target is found at 74.306, which is the price level at which previous lows of June 20 and July 30 2019 were seen. Upside price movement also tested this area on September 12 and was resisted at this point. Price has to violate the lower wedge border in order to test this support area.

A successful breakdown of the wedge in fulfillment of the technical expectations of this pattern may take the price below the 74.30 support if the 3% penetration rule is obeyed by the breakdown move. This then opens the door to 73.215 where a series of previous highs were seen on August 1, September 23 and October 1, 2019. The 72.625 and 71.828 price levels are other possible support targets should the measured move from the breakdown of the rising wedge be actualized.

On the flip side, price recovery would probably retest the immediate upside target at 76.178 (previous highs of May 30, July 1 and July 16 2019), with potential for further upside to the major resistance at 77.542 should risk-on sentiment return to the markets.