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AUD extends upside improved market sentiment, testing 100-D SMA

  • AUD/USD has extended its correction, piercing the confluence of the 100-D SMA and 200-4hr SMA with a view of to challenge the 23.6% fibo of the 2018 downtrend.
  • Market fears subside a little over trade headlines while awaiting UK's Prime Minister May's vote of confidence.

Market sentiment was more positive overnight, with market fears around trade easing a touch enabling AUD/USD to extend its recover from the 0.7183 recent lows. Fears about the impact of the China/US trade war on world growth and concerns that the US might still be prepared to issue new tariffs on China and on Europe have been a weight on comodities and risk associated currencies such as AUD. Trade wars and slowing growth are clearly of particular concern in China. 

However, President Trump said he would intervene in the Huawei case if it helped bring about a trade deal with China and The Wall Street Journal reported that China is planning on giving foreign firms more access to its markets and that drafting of a replacement for the “Made in China 2025” plan is underway. "This would be a big win for the Trump administration. Sources said a key concession under the plan would be dropping numerical targets for market share by Chinese companies. Reuters also reported that China bought USD180m in soybeans from the US, adding to the positive tone," analysts at ANZ Bank argued. 

Meanwhile, as for data, US CPI came in as expected, which weighed on the greenback. Core inflation nudging up 0.1%pt to 2.2% y/y. The Fed is expected to downgrade its inflation forecasts next week, with increased speculation it will pause the hiking cycle in 2019.

AUD/USD levels

Analysts at Commerzbank noted that AUD/USD continues to stabilise at the 55 day ma at .7187 and the .7165 November 13 low:

"We also find here cloud support in the 0.7192/.7140 band and we look for this to hold the downside for recovery. Failure there would suggest a retest of the 0.7022 recent low. We regard 0.7022 as an interim low. We have TD support at .6995 and below 0.6995/75 targets 0.6827 the 2016 low. Rallies will need to regain the September and early November highs at 0.7302/14 to reassert upside interest to the 200 day ma at 0.7402."

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