2nd February 2021 - AUD/USD: Bears still need to take caution

Good Morning,

Market Headlines

US equities rebounded, the battle between retail traders and hedge funds seen as a short-term phenomenon. The S&P500 is currently up 1.6%, but risk-sensitive currencies and bond yields have not followed suit. US 2yr treasury yields traded around 0.11%, while the 10yr yield slipped from 1.09 % to 1.06%. Commodities, Brent crude oil futures rose 2.1% to $56.20, copper fell 0.3%, iron ore fell 0.9% to $156.40, and gold rose 0.8%.

Overnight Currency Ranges

AUD/USD: 0.7613 – 0.7662

EUR/USD: 1.2061 – 1.2132

GBP/USD: 1.3656 – 1.3758

USD/JPY: 104.66 – 105.03 (a two-month high)

USD/CAD: 1.2763 – 1.2842

NZD/USD: 0.7153 – 0.7200

AUD/JPY: 79.89 – 80.21

AUD/NZD: 1.0630 – 1.0647

AUD Thoughts

- AUD/USD is testing a critical support area following the breakout of the symmetrical triangle support.

- The retest of a 50% mean reversion has left a bearish bias on the charts, but support is critical.

- The weekly M-formation is now in play and there could yet be a retest to the upside of the structure's neckline before more shorts are added.

Net AUD positions have held in positive territory for the third week but were pared back in the week ending 26 January by around 3% of open interest. This fits in with the corrective bullish narrative surrounding the greenback in recent times but doesn't necessarily mean the market is shifting its bias towards a bearish Aussie.

Only 534 shorts were added. Fundamentally, however, China/Australian tensions and the Reserve Bank of Australia’s QE policy could temper the attraction of the AUD going forward

AUD struggled overnight despite the significant shift in general market sentiment. After trading to a low of 0.7606 in Asian trade yesterday, the AUD/USD recovered to a high of 0.7662 before settling at 0.7630 in late trade. Demand is expected at 0.7580 and again at 0.7520 while offering interest is more pronounced and likely begins at 0.7720.

Event Risk Data Today

Australia: The RBA will announce the results of its February Board meeting. The Bank may announce an extension of the QE program by a further $100bn at this meeting, but it is more likely to wait until March. Weekly Payroll Jobs and Wages will be released for the week ended 16th January.

Euro Area: The advance read of Q4 GDP is expected to show a contraction of 0.9%. With the bloc facing major headwinds coming into the new year, this places the Euro Area on the cusp of a double-dip recession.

US: The FOMC’s Mester will speak on the labour market.