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AUD/USD struggles to find direction, stays in range below 0.7200

  • US Dollar Index retreats from 2018 highs on Monday.
  • Risk aversion continues to weigh on the AUD.
  • Coming up: RBA's meeting minutes.

Following last Friday's sharp fall, the AUD/USD pair is having a difficult time setting its next short-term direction on Monday and is fluctuating in a very tight 15-pip range. As of writing, the pair was virtually unchanged on the day at 0.7178.

The US Dollar Index, which advanced to its highest level of the year at 97.71 on Friday, failed to preserve its bullish momentum and retraced a large portion of its latest rally. At the moment, the index is down 0.25% on the day at 97.20. However, the lack of macroeconomic drivers today suggests that this move is a technical correction rather than the beginning of a deep fall.

On the other hand, the pair is struggling to take advantage of the broad-based greenback weakness as the risk-off mood hurts the demand for the risk-sensitive AUD. Ongoing uncertainties surrounding the political scene in the UK and Europe as well as concerns over a global economic slowdown continue to keep investors closer to safer assets. Reflecting the negative market sentiment, major European equity indexes suffer losses on Monday, which could cause Wall Street to stay under pressure and further weigh on the AUD.

During the Asian session on Tuesday, the RBA is going to release the minutes of its December meeting. Previewing this event, "There may be an increased focus here given the recent shift in market pricing. In particular, we will watch the tone around housing after the wording became more cautious in the post-meeting statement,” ANZ analysts said.

Technical levels to consider

The pair could face the initial resistance at 0.7200 (100-DMA/100-DMA) ahead of 0.7250 (20-DMA) and 0.7320 (200-DMA). On the downside, supports are located at 0.7150 (Dec. 14 low), 0.7080 (Nov. 1 low) and 0.7000 (psychological level).

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