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  • AUD/JPY extends the previous day’s declines as risk aversion gets intensified.
  • The US killed key Iranian members of the Quad force in strikes near Baghdad airport.
  • US-China trade optimism also recedes amid doubts over phase-two talks.

AUD/JPY drops to one week low while taking rounds to 75.30 during early Friday. While doubts over the smooth running of the US-China phase two trade talks have initially exerted downside pressure on the pair, the US-Iran tussle recently weighed on the market sentiment.

The US killed key Iranian members, including Quds Force Commander Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis during air strikes near Baghdad airport. This leads to a notable increase in the market’s risk aversion while also supporting oil prices.

Read: Pentagon: US forces killed Iranian Quds Force Commander Soleimani

Reflecting on the market’s risk-off, the S&P 500 Futures drop 0.80% to 3,232 whereas most Asian stocks also weaken.

Elsewhere, The Hill raised doubts over the US-China phase-two talks considering the thorny issues that are still left for discussions. The phase-one deal will be signed on January 15 whereas the US President Donald Trump will head to Beijing afterward to discuss further conditions of future trade relations with China.

The AUD/JPY pair is considered as a barometer to market’s risk sentiment and often declines amid risk-off.

Given the trade/political headlines being in the spotlight, traders will look for details on how the US will react to the Iranian threats that will start rolling out soon. Additionally, information for the phase-two talks, ISM Manufacturing PMI and FOMC minutes will also be the key to watch.

Technical Analysis

The four-month-old rising trend line and 23.6% Fibonacci retracement of the year 2018/19 downpour highlights 74.60/50 as the key support while 38.2% Fibonacci retracement level near 77.30 can act as immediate resistance.