- AUD/USD pulls back to trendline support in fears a trade deal may not be significant enough.
- AUD/USD respects prior price action and bulls look for constructive set-up, bid beyond 0.6930.
AUD/USD was consolidating the downside of Friday’s move in the mid 1.3350s by the close and is set to open markets on the backfoot following signs that a phase-one deal may not be all what markets had hoped for this Christmas.
As per Breaking: US reaches deal in principle with China, awaits Trump signoff, wherein a warning was published not to chase the knee-jerk rally beyond said near-term targets due to the underlying issues that were sure to rear their ugly heads, AUD/USD has indeed pulled back to the predicted support area on the presumed fundamental outcomes of the news.
The devil remains in the detail, long way to go
While details emerged on Friday, they still left questions over how far such a deal can go before the creases for US and Chinese businesses can be ironed out. In fact, neither government submitted a full text or even a detailed summary of the deal. While the US has been highly optimistic in the press, the Chinese negotiators struck a more cautious tone in their press conferences following the US announcements, albeit confirming that both sides reached an agreement in principle.
However, the critics among the observers will claim that this deal amounts to very little and will see nothing more than China agreeing to step up US farm purchases. This deal certainly does not give any kind of long-term economic changes that US officials will require to level the playing field for businesses.
US trade advisor, Robert Lighthizer added that China made specific commitments on intellectual property and that he and Chinese Vice Premier Liu He will sign the deal in early January, with the pact entering into force 30 days later. While he portrayed the first phase as a crucial step, He also acknowledged that tougher issues lay ahead in future negotiations. At this stage, the market needs more details on the specifics, and hence the hysteria was sold into across the spectrum of proxy trades to the trade war, such as AUD. Indeed, there is still a long way to go between the US and China before there is a level playing field – Trump said on Friday that he had not planned to start negotiations on phase two of the deal until after the 2020 U.S. presidential election.
AUD/USD levels
As per the analysis on he Breaking news, AUD/USD did indeed rally to the resistance, capture some stale short buy-orders on the way through and then sell back off to trend line support on profit-taking. Bulls will now look for a constructive buy entry so long as the market holds here and breaks beyond the 200-day moving average and close above prior resistance/support area of 0.6930/50.
“Technical indicators, in the meantime, retreat from overbought readings, suggesting the pair may have hit an interim top, to be confirmed it the current decline continues sub-0.6865 a former relevant resistance level,” Valeria Bednarik, the Chief Analyst at FXSreet argued.
Below the mentioned support, the next ones come at 0.6800 and 0.6770 with bears taking over on a break below this last. The pair would need to accelerate through 0.6940 to extend its rally toward 0.7000, a level that could be breached if the US and China finally solve their trade issues.