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  • AUD/USD drops to the monthly support trend line as the market’s risk tone deteriorates over US-Middle East tension.
  • Australia’s AiG Performance of Mfg Index registered better than forecast figure whereas Commonwealth Bank PMIs
  •  in December.
  • China’s Caixin Services PMI, trade/political headlines will be followed for fresh impulse.

AUD/USD trades near 0.6940 amid the initial Asian session on Monday. The recent US-Iran tension adds to the Aussie weakness as the pair is considered a barometer of the market’s trade sentiment.

The market’s risk tone has been under pressure off-late and the reason is a war-like situation between the US and Iran. Ever since the US airstrikes killed the leader of the Quads force, Iran and Iraq have rung alarms against the Trump administration. While Iraq parliament members have voted to push the US militaries out, Iran attacked the US targets in Kenya and Baghdad. The situation is yet to worsen as the US President Donald Trump tweeted that the US will “quickly and fully strike back”.

Elsewhere, the doubts over the US-China phase-two talks have also emerged as the thorny issues are yet to be discussed. As a result, optimism triggered through the nearness to the signing of the phase-one deal seems to have dimmed off-late.

In a reaction to the same, the US 10-year treasury yields slipped below 1.80% during their latest reading.

On the economic front, Australia’s AiG Performance of Mfg Index grew past-48.1 prior to 48.3, still below 50.00 mark differentiating the expansion from the contrary. Elsewhere, the Commonwealth Bank PMIs also signal upbeat picture as Services PMI crossed 49.5 expected and prior to 49.8 while Composite PMI grew to 49.6 from 49.4. It’s worth mentioning that the details were for the December month.

While trade/political headlines will continue to be the key drivers, China’s Caixin Services PMI, prior 53.5, can also offer intermediate direction.

Technical Analysis

In addition to an ascending trend line since November 29, at 0.6930 now, a 200-day EMA level of 0.6923 will also restrict the pair’s near-term declines. Alternatively, 0.7000 round-figure holds the key to the pair’s further upside.