The most recent bout of investor risk aversion cites numerous causes:
•    Chinese regulators draining liquidity from their domestic markets
•    The possible end to Chinese stockpiling of commodities
•    The possibility of U.S. Federal Reserve chairman, and architect of their quantitative easing programme, Ben Bernanke, not being reappointed for a second term
•    Sovereign debt worries, especially concerning Greece, Japan, Ireland, Iceland, and Portugal, and peripherally the U.K. and U.S.
•    Proposed U.S. banking regulations impacting investors and, less directly, traders
•    The economic recovery slowing and possibly stalling

So just how serious is this bout of risk aversion? Do traders have a reason to expect a reversal in the ongoing risk rally? For a quick market litmus test, no currency pair is better than AUD/JPY, the barometer of risk aversion.

Below is the current daily chart of AUD/JPY:

The strong bullish trend is obvious and emphasized by the swoop through the chart’s centre of the MA-200. However, there are several signs indicating the rally is slowing.

1. The price action’s pushes higher are growing shorter and the accompanying stints of correction and/or consolidation are growing longer.
•    The first rally higher, on the far left of the chart, lasted for two months and was followed by a two-week correction lower.
•    The second rally higher, emphasized with a steep trendline, lasted roughly seven weeks and was followed by a three-week correction.
•    The third rally lasted for a month and was followed by a two-week correction and six weeks of consolidation.
•    The fourth rally lasted three weeks and was followed by four weeks of correction and three weeks of consolidation.
•    The fifth and final rally lasted two weeks and has now been followed by almost three weeks of correction, which have returned the price action nearly to the beginning point of this rally.

2. The rally is losing momentum, with each successive higher high not quite as lofty as the one before.
The fourth rally is an exception, as after the six-week consolidation, sufficient pressure had built to force the price action beyond the expected resistance level to the one above. However, those gains appear to have been pulled forward from the fifth rally, which barely broke new ground higher.

3. The angle of the trend is levelling off. This is evident from the flattening of the MA-200, as it draws closer to the price action, and from the gentler angle of the second trendline, which is drawn on the fifth rally.

Note that the trendline has been broken by the final correction lower, indicating the end of that fifth rally. At this point, traders are watching to see if long-term support-resistance at 80.40 holds. A break there may signal a downside test of 79.60 and the MA-200, and therefore of the long-term rally itself.

If there is a sixth rally, by definition it must create a higher high than the fifth one—higher than the 86.19 set 11 January 2010. Otherwise the price action could move from bullish trend to rangetrading, between roughly 85.40 and whatever downside is set by this current correction lower.