Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6525.
- Add a stop-loss at 0.6630.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 0.6585 and a take-profit at 0.6650.
- Add a stop-loss at 0.6500.
The Australian dollar erased some of the gains made last week as commodity prices retreated and concerns about the Chinese economy continued. The AUD/USD pair retreated to the psychologically-important support at 0.6580, a few points below last week’s high of 0.6613.
China concerns remain
The AUD/USD pair retreated as concerns about China’s economy continued. There are concerns that the recent strong economic numbers from the country are concealing the real situation. For example, while the official statistics agency said that the youth unemployment rate stood at 21.3% in December, some analysts believe that the real figure is above 40%.
China, Australia’s biggest trading partner, is going through numerous challenges such as the collapse of the real estate sector, high debts and low revenues for local governments, and high rate of non-performing loans. It is also seeing weak foreign direct investments as relations with the west continue.
As a result, key commodities that Australia exports like iron ore and copper have slumped in the past few weeks. Chinese equities, as evidenced by the Hang Seng, China A50, and Shanghai composite, have all plunged even as their American peers surge.
The AUD/USD pair will not have many economic catalysts on Tuesday since the US has no scheduled data. As such, traders will continue focusing on the upcoming US GDP and PCE numbers scheduled for Thursday and Friday. They will be followed by the interest rate decision by the Federal Reserve next week.
Before that, it seems like investors have embraced a risk-on sentiment as US bond yields have retreated while stocks have risen to record highs. The 10-year and 30-year bond yields have retreated to 4.10% and 4.31%, respectively.
At the same time, the key US indices like the Nasdaq 100 and S&P 500 surged to another record high as tech stocks continued rising.
AUD/USD technical analysis
The AUD/USD pair’s attempts to bounce back faded on Monday as it formed an evening star pattern on the 4H chart. It has remained below the 50-period Exponential Moving Average (EMA). The Relative Strength Index (RSI) retreated after hitting the neutral point at 50. Similarly, the %K and %D have also turned around and are moving downwards.
Therefore the pair price will likely continue falling as sellers target the next support at 0.6525, the lowest point last week. A move above the key resistance at 0.6613 will invalidate the bearish view.
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