Bearish case
Sell the AUD/USD at 0.7700.
Set a take profit at 0.7668 and a stop loss at 0.7750.
Alternatively, open a sell stop at 0.7665 and have a take-profit at 0.7600.
Bullish case
Set a buy stop at 0.7750.
Add a take-profit at 0.7818 (last week’s high).
Set a stop-loss at 0.7700.
The AUD/USD is under pressure today because of the overall strong US dollar and the mixed economic data from China. It is trading at 0.7700, which is lower than last week’s high of 0.7805.
Mixed Economic Data from China
The Australian and Chinese economies are closely related because of the vast amount of goods and services that China buys from Australia. In total, the country buys approximately 37% of all Australia’s goods.
Therefore, the AUD/USD is reacting to the GDP, retail sales and industrial production data from China. According to the Chinese statistics bureau, the country’s economy grew by 6.4% in the fourth quarter, continuing the recovery that started in the second quarter. This increase was better than the median estimate of 6.1% and the third quarter’s increase of 4.9%. In total, the economy grew by 2.3% in 2020.
This growth was mostly due to the rising external demand that pushed its exports and trade surplus up sharply. Fixed asset investment, an important measure of GDP, also increased by 2.9% from 2.6% in the previous quarter. In December, Chinese industrial production increased by 7.3% while retail sales rose by 4.6%.
The AUD/USD is also falling because of the relatively strong US dollar. The US Dollar Index is trading at $90.80, which is substantially higher than last week’s low of $89.90. This performance is partly due to the recent $1.9 trillion stimulus package announced by Joe Biden. It will possibly hasten the recovery and lead to higher rates and QE tapering faster than expected.
Meanwhile, the rising number of coronavirus cases in China have also contributed. The country reported 100 new cases in the northeast, raising concerns about further infections ahead of the new year celebrations. Meanwhile, according to Australia’s senior health official, the country will possibly not open its borders this year. This could have a chilling effect on the hotel and hospitality industries.
AUD/USD Technical Outlook
The AUD/USD has formed a double-top pattern, as shown on the four-hour chart. Also, the 15-period and 25-period exponential moving averages have made a bearish crossover while the Relative Strength Index (RSI) has continued to decline.
Therefore, the pair will likely continue falling as bears target the neckline of the double-top pattern at 0.0.7668. A break below this support will open the possibility of the pair dropping below 0.7600. On the flip side, a move above the intersection of the two EMAs at 0.7750 will invalidate the bearish thesis
