AUD/USD rises as US-China trade war fears recede
Fawad Razaqzada May 21, 2018 5:29 PM
The Australian dollar has been among the strongest of currencies out there today, helped along by a rally in base metal prices.
The Australian dollar has been among the strongest of currencies out there today, helped along by a rally in base metal prices. The commodity currency rose in what started out to be a "risk on" day for the markets with global stock indices rising sharply after the US and China backed down from a full-on trade war at the weekend. With China being Australia’s largest trading partner, any positive development for the world’s second largest economy is thus positive for Australia’s export. However, the Italian stock and bond market sell-off held back risk sensitive assets a little, although it wasn’t enough to stop the UK’s FTSE 100 from hitting new all-time highs today. But in the US, the stock markets couldn’t sustain the early rally although the indices were still in the positive territory at the time of writing. Meanwhile the US dollar gave back its earlier gains as the slight risk-off tone in the second half of today’s session supported the likes of the euro, Swiss franc and Japanese yen. Even gold managed to catch a small bid.
As a result of a slightly soft US dollar and strong Australian dollar, the AUD/USD was able to climb back to 0.7560 resistance, where it was trading at the time of this writing. This currency pair may have already formed a false break reversal pattern given that the sellers have struggled to hold it below the key 0.75 handle after several attempts. As well as a psychologically-important level, this level marks the previous swing low from December. Consequently, the AUD/USD has not only turned positive on the day and week, but it has done so on the monthly time frame as well (see the inset). Now that the AUD/USD is above the monthly opening price and around a technically important level, we may get some range expansion to the upside, particularly if short-term resistance at 0.7560 breaks and price holds above it. If so, there’s not much further resistance seen until the point of origin of the last breakdown at 0.7655, a level which may now turn into resistance. This bullish outlook will probably become invalid in the event the AUD/USD now goes back below 0.7500 on a daily closing basis. If that were to happen, then one has to question the validity of that false breakdown pattern.
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