AUD/JPY now depends on RBA sentiment and/or geopolitical escalations or deescalations

• AUD/JPY bears are taking on the 200-DMA as risk-off themes prevail. 
• US/Iran war-cries are unlikely to dissipate any time soon.
• RBA to cut rates on Feb 4th or stay-put?

Febrile markets, with respect to Iran and the US drums of war, is capping US benchmarks below record highs which in turn is giving life to the yen and weighing on the FX market's risk-barometer, AUD/JPY, which now trades below the 200-day moving average. 

AUD/JPY is currently trading at 74.50, -0.93% on the day having travelled from a high of 75.26 to a low of 74.37 and within a stone-throw away from 2019's bear-trend technical support level as geopolitical fundamentals kick-in at the start of 2020. 

Uncertain times will keep risk appetite at bay and AUD/JPY downside underpinned

Indeed, uncertain times will keep risk appetite at bay which usually supports the yen. However, as we can see, markets are taking the view that neither the US not Iran is about to engage in a full-blown war and that both sides wish to protect their own interests. However, with such a haranguer at the helm in Washington who has promised to retaliate disproportionately to Iran's indignation and possible subsequent retribution, considering the strong likelihood of a counter-attack from Iran, the war-cries are unlikely to dissipate any time soon and that means AUD/JPY should remain as a sell on rallies – especially when you mix in the possibility of a rate cut from the Reserve Bank of Australia, (RBA). 

Will the RBA factor in the fires to Feb interest rate decision?

Economic growth will take a 0.3 percentage point hit over the December and January quarters due to Australia's bushfire crisis, according to the latest analysis from Goldman Sachs. As the Australian bush-fires have raged, financial markets started to price in a higher chance of another 0.25 percentage point interest rate cut next month, up from 45 per cent before Christmas to 53 per cent – February 4 is the next meeting date.

"We expect the RBA to flag downside risks to the outlook from the bushfires in its February Statement on Monetary Policy, but don’t expect the fires to materially impact its central forecasts or policy decision at this stage," Goldman Sachs chief economist Andrew Boak said.

Nevertheless, weak wage growth, drought and forest fires are significant headwinds for the economy. "These factors coupled with the recent recovery of the AUD raise the risk that the RBA will cut rates again at its next policy meeting on February 4," analysts at Rabobank argued who are looking for the downside in the Aussie to continue to around 0.67 on a 3-month view in a start of the year forecast.

AUD/JPY levels

The breach of the 200-day moving average where it meets the 23.6% Fibonacci retracement of the 2019 range as first support is concerning. We now have the June lows and confluence of the 38.2% Fibonacci (2019 range) down at 74 the figure and 73.80 as the next key downside targets (2019 trendline resistance/turns support). A greater support barrier (since GFC 2009) comes in at the 61.8% Fibonacci (2019 range) between 72 the figure and 72.50. A bullish correction will open 76 the figure, 76.20 and 77.20/50 and the 21-month moving average as the summit of the rising wedge formation.