AUD/USD: Fresh risks, US holiday probe bulls below 0.7245/50 key resistance

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  • AUD/USD attempts to fill the week-start gap down from 0.7240 to 0.7222.
  • Challenges to the US stimulus prevail despite Trump’s readiness for a “bigger” package.
  • PBOC unveiled extra measures, COVID-19 conditions in Europe again get worrisome.
  • A light calendar in Asia keeps risk catalysts on the driver’s seat during a likely dull day.

AUD/USD seesaws around 0.7230, after beginning the week’s trading with a downside gap to 0.7222, as Monday’s Asian session kicks in. The aussie pair marked the biggest gains in six weeks on Friday amid broad US dollar selling. The reason, mostly cheered, mentioned hopes of bigger aid package from the US than earlier thought/agreed. However, the recent headlines suggest that the same is still likely to find it difficult in the American Congress. Also weighing on the quote could be challenging to the risks emanating from fears of a hard Brexit and surge in the coronavirus (COVID-19) fears from Europe.

Pelosi rejects Trump’s offer…

Despite US President Donald Trump’s boost to the COVID-19 aid package proposal to $1.8 trillion, House Speaker Nancy Pelosi termed the offer as “insufficient”, which in turn requires the Republicans to go a long way before they settle on the much-awaited stimulus. Elsewhere, Axios recently came out with the news suggesting US President Trump hit campaign trail every day through election. During the weekend, the news broke that the White House leader is no longer a “transmission risk to others.”

The pandemic’s surge in Europe, specifically in France, Spain, Germany and the UK, has been wild off-late. France reported record 27K new cases with German infections jumping by the most since April. Further, Spain called the lockdowns in Madrid whereas UK’s Labour’s work and Pensions Spokesman Reynolds said that the government has lost control of the coronavirus crisis.

Additionally, China’s central bank, People’s Bank of China (PBOC), announced during the weekend that financial institutions would no longer need to set aside cash when purchasing FX for clients through forwards. The same move was taken in late 2017 to tame the Chinese currency’s strength that offered a 2.5% loss over the following three weeks to yuan. As China is the biggest customer in Australia, any downside impact on its currency can weigh on the Australian dollar.

It’s worth mentioning that the odds of a hard Brexit are also increasing as the UK reaches its proclaimed October 15 deadline with no agreement in sight. Recently, UK PM Boris Johnson told French President Emmanuel Macron that they will try out every way to reach a trade deal with the European Union (EU) while considering to leave with an Australia-style deal, if nothing happens by the deadline. Additionally, the Tory leader pushed German Chancellor Merkel to “bridge the significant gaps”.

Against this backdrop, market sentiment is likely to remain pressured and can probe the AUD/USD buyers amid a lack of major data/events and the US holiday. It should, however, be noted that the risk catalyst remains as the key driver to the pair.

Technical analysis

AUD/USD buyers eye important resistance confluence around 0.7245/50, comprising a falling trend line stretched from September 01 as well as the 200-week SMA. The pair’s ability to cross 21-day and 50-day SMAs on a daily chart on Friday suggests that the bulls are ready to retake the controls. However, a clear break of 0.7250 becomes necessary for the pair to aim for the 0.7300 threshold, followed by the mid-September top surrounding 0.7345/50. Meanwhile, 50-day and 21-day SMAs, respectively near 0.7205 and 0.7180 can probe the bears’ entry.

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