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AUD/USD: Price stabilizes as bulls step in to protect stocks from plunging further

  • AUD/USD is currently trading at 0.7055, down a touch from the highs of 0.7069 but up from the lows of 0.7033. 
  • Risk appetite tries to improve in the 11th hour ahead of the Christmas break, lifting US stocks off the early session lows following a sharp decline on the open - AUD follows suit. 

AUD/USD has been tracking risk sentiment in the final days into the Christmas break and has travelled lower since printing a double top high in the 0.7390s as US stocks have the worst time for a decade amid growing concerns over global growth and geopolitical risks. Then, in the final full day of trade before the holidays, the US government announces a partial shutdown due to a disagreement over spending plans that could last into January. This was the straw that broke the camel's back and sent stocks and risk appetite over the edge. 

There were reports over the weekend of crisis talks between Treasury Secretary and major central banks which added to the concerns and weighed on risk further. However, as that dust settles, it turns out that crisis talks might b a good thing after all as seen as preventative rather than a state of emergency.

The Plunge Protection Team

Today, Mnuchin is convening the president’s working group on financial markets, AKA, the  "Plunge Protection Team" which is a group that includes 

  • The Secretary of the Treasury, or his or her designee (as Chairperson of the Working Group);
  • The Chairperson of the Board of Governors of the Federal Reserve System, or his or her designee;
  • The Chairperson of the Securities and Exchange Commission, or his or her designee; and
  • The Chairperson of the Commodity Futures Trading Commission, or his or her designee.

The group was created following the stock market crash of October 1987 and met in 2009 in the latter stages of the financial crisis.

AUD/USD levels

AUD/USD has sold off to below 0.7085 which was the 11th September low and was regarded as the last defence for the .7022 recent low. 

"The bearish stance prevails for the AUD/USD pair according to the 4 hours chart, as the pair is developing well below moving averages, with the 20 and 100 SMA converging with downward slopes around 0.7215," Valeria Bednarik, Chief Analyst at FXstreet noted who explained that the technical indicators in the mentioned time frame have barely bounced from oversold readings, without enough strength to confirm an upcoming bullish move. 

"The immediate resistance comes at 0.7080, with chances of a recovery up to 0.7130 on a break above it. Below the mentioned yearly low, a break below 0.7000 seems likely."

Lower down, analysts at Commerzbank note TD support at 0.6995 and below 0.6995/75 targets 0.6827 the 2016 low; "The market is on the defensive." 

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