Aussie's 13.6% pandemic reflation trade driven rally since March versus the haven yen has reached a major inflection point.
This point may prove to be just a pause to correct overbought technicals, but, in any event, it should also set the global risk tone for the next few weeks.
AUD/JPY's 76.86 high Wednesday barely eclipsed June's 76.77 post-pandemic peak.
And June's peak barely eclipsed the 76.54 pre-pandemic high from December.
This pattern of failed breakouts comes as daily RSIs became overbought on Wednesday.
If today's pullback closes below yesterday's 76.04 low, it would raise the risk of an overbought and bearishly divergent top favoring at least a retreat to the 30-day moving average that's repeatedly proved to be resilient support since May.
A more benign scenario is that the bull run merely takes a breather before finally closing above 77 on the way to the 161.8% Fibo target off the March base at 80.11 and the 200-WMA at 79.95.
Aussie July manufacturing and services PMIs jumped to 53.4 and 58.5 offering a cushion against bad news on pandemic costs nL3N2EU0DZ, but the tight link between S&Ps and AUD/JPY suggests the broader reflation trade is the primary driver.
That makes the latest U.S. fiscal support plan, amid spiraling covid cases nL2N2EU0PX and high jobless claims, crucial.
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