Search ForexCrunch
  • Bulls seeking a test of prior trendline support for the 1.64 handle.
  • Besides trade wars, Chinese data could be next major bearish catalyst for the Aussie.

There is some slight weakness in the Aussie on a twenty-four-hour basis, with AUD/USD slipping from a daily high of 0.6880 to supportive 21 and 50-day moving averages. EUR/AUD has also seen a bid, with the cross moving back to trendline.  

Overnight, it was quite eventful, in respect of events, but the price action was somewhat subdued considering.  Either way, China-US risks is back on, with U.S. Vice President Mike Pence criticizing China’s actions against protesters in Hong Kong in a speech he made – He made comments that may well antagonise the Chinese trade negotiations, but potentially not enough to stall progress towards finalising a trade deal at next months summit in Chile.  

Elsewhere, it was Draghi’s last European Central Bank meeting.  The ECB kept policy on hold as fully expected, leaving the deposit rate at -0.5%, and affirming that the asset purchase program will start on the 1st November at a pace of EUR20bn per month. Draghi also noted that there are downside risks to weak growth and little upside pressure in soft inflation, perhaps a little more since the last meeting in September, leaving the way now for  Lagarde  to take over the dovish baton.    

China data to weigh on the Aussie

Looking ahead, the next major risk to the Aussie comes in the form of Chinese data next week which will have followed the latest Gross Domestic Product disappointment from the nation, signalling a contraction global growth. Traditionally, PMIs are seasonally weaker for China in  October and on Thursday, China’s PMI will be the region’s key highlight. Another sub-50 reading from the official release will likely weigh  on the Aussie.  

“We expect China’s official manufacturing PMI to remain in contractionary territory in October due to overall weakness in the sector, as evidenced in the decline in the PPI (September:-1.2% y/y) since July this year,” analysts at ANZ Bank explained –    “Recent optimism in US-China trade talks is unlikely to boost the PMI data anytime soon because of an increase in external orders will take time to pass through.”

EUR/AUD levels

The cross moved below the prior trendline support when coming in striking distance of the 1.62 figure. However, the cross has now moved back above the 50 and 21-day moving averages and is testing the bear’s commitments at that prior trend line. A break above there will open risk to the 1.64 handle and send the cross back in a northerly trajectory towards 1.65 and prior late summer resistance.