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AUD/USD bulls defending the 76.4% retracement level of late Dec rally

  • AUD/USD has started the week off on the front foot but remains in the broader bearish environment on both a fundamental and technical basis on the weekly sticks, (neutral/bullish near term).
  • AUD/USD is currently trading within a tight range at 0.7042, up from 0.7039 New York close and below the opening high of 0.7046.

AUD/USD traded on Friday's closing subsequent to political noise yet again. The US stock market has been the driver of the flows in the FX space over these holiday sessions, tracking the mood amongst investors following the US government shutdown saga and forever conflicting Sino/US trade relations headlines. 

On Friday, AUD/USD travelled between 0.7067 highs to a low of 0.7030 the low, reversing circa 76.4% of the 27th Dec's rally from around 0.7020 marking that fibo retirement at 0.7030 as a critical support area in the near term. The price action was not only fuelled by politics, but the initial drop was partly on the back of the surprise to November's Chicago PMI that sent yields in the US higher, widening the AU/USD spread and subsequently weighing on the currency pair. The pair closed not far off from the lows and left a monthly bearish engulfing candle in place, which has bolstered the bearish technical picture as a time where there is plenty of uncertainty on both an economic and political standpoint as we head into the New Year. 

Trump is sending a mid-level US delegation to China

However, on the positive front, trade talks look set to continue from the off with reports that Trump is sending a mid-level US delegation to China in the week of January 7th to initiate the next round of trade negotiations before the cease-fire deadline kicks which Xi and Trump agreed to hold off on slapping additional tariffs on each other's goods until March 1st - That should be somewhat Aussie and risk positive. For the day ahead, we have the Chinese PMIs that could have an impact considering the angst over a slowdown in China and the global economy as a whole. 

AUD/USD levels

Despite that the weekly sticks are now clouded by a bearish engulfing bearish candle, Valeria Bednarik, Chief Analyst at FXStreet, explained that the short-term picture for the pair is neutral-to-positive:

"In the 4 hours chart, technical indicators aim higher within neutral levels, as it advances above a flat 20 SMA. In the same chart, however, the 100 SMA accelerated its decline well above the current level, and moving away from the 200 SMA, this last around 0.7220, reflecting the absence of AUD demand. The weekly high comes at 0.7077, acting as an immediate short-term resistance, with gains above the level probably supporting an extension toward 0.7100/10. Below 0.7015, on the other hand, stops could be triggered, resulting in a steeper decline toward 0.6950."

Support levels: 0.7015 0.6990 0.6950

Resistance levels:  0.7080 0.7110 0.7140  

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