Traders kick off the new week in risk aversion mode as Coronavirus fears continue to take center stage, making the down trending pattern in AUD/USD one to watch for the session.
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Fresh Market Headlines & Economic Data:
- The total value of building permits issued by Canadian municipalities increased 7.4% to $8.7B in December
- Canadian Housing Starts Unchanged in January
- China takes major steps to prop up coronavirus-hit economy
- China’s Xi Appears in Public; Death Toll Hits 910
- Oil dips on weaker Chinese demand, traders await OPEC+ cuts
- China CPI Hits Over 8-Year High at 5.4% Amid Virus Outbreak, Lunar New Year
- Fed’s Bowman: U.S. economic backdrop “very favorable”
- EU member states hardening demands for ‘status quo’ access to UK fishing grounds after Brexit
- Outlook in Japan dimming amid coronavirus outbreak: ‘economy watchers’ survey
Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:
- Fed Harker speech at 8:15 pm GMT
- Australia Business confidence, Home loans at 12:30 am GMT (Feb. 11)
What to Watch: AUD/USD
Not a lot of action to start the week, but may have an opportunity in AUD/USD as the Coronavirus story seems to be the main driver at the moment, along with more stimulative efforts from China to support their economy. The latter had sentiment popping towards positive at the week’s open, prompting AUD/USD to move higher, eventually finding short-term resistance around the 38% Fibonacci retracement area of the recent swing move from around 0.6770 – 0.6670 last week. Looking forward, we do have potential catalysts from Australia to hopefully keep volatility going for the pair in the form of housing data updates (housing starts and building permits). These aren’t top tier events, but housing is a major part of any economy, so any big surprises there will likely move the currency.
If you’re a bear on AUD/USD, you’re currently running with the mid to longer term trends lower, and this latest bounce could be another opportunity short. Watch the area around the Fibonacci retracement levels for reversal candles, especially if Aussie housing data disappoints and/or there are fresh negative Coronavirus developments.
If you’re a bull on AUD/USD, it’s a tough argument to make right now, but more stimulus from China and any kind of reporting of a slowdown of the virus spreading will likely get traders in a positive risk mood.
Positive Aussie housing data is great too, but we think any news from China will be more of a factor. In this scenario, look for a break above the 0.6700 handle, then support patterns around there before considering a long position, with a potential target at the previous swing high (around 0.6770) for a good short-term R:R when using the daily ATR (around 40 – 50 pips) as a top guide.