AUD/USD Upbeat After Friday’s Risk-Off Drop

  • AUDUSD
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AUD/USD

News around a new Covid-19 variant, called Omicron, through a curveball on Friday, as markets were trying to put the pandemic in the rearview mirror. Omicron triggered a flight to safety, to the detriment of risk-sensitive commodity currencies, such as the Australian Dollar.

The pair plunged and concluded its fourth straight losing week, heading tow potentially its worst month of the year. Today, it manages to recover some of those losses, as risk conditions normalize during the European hours, but caution is needed to see in what mood will US traders return, following their Thanksgiving holiday.

Sentiment remains the key factor that can determine the next leg of the move and we will also be closely watching any central bank commentary, to see how the latest Covid related news have affected their thinking. This week we expect many central bank speakers mostly form the Fed, with Mr Powell on tap later in the day.

Monetary policy differential has been a key driver for the pair's recent demise, with the Reserve Bank of Australia staying on the dovish side, whereas it US counterpart announced QE tapering earlier in the month.

More to it, the Fed has been turning increasingly hawkish and we will need to see if the new covid variant will lead to a rethink and/or a repricing of market expectations of a faster tightening path.


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On the technical front, AUD/USD is now exposed to August's 2021 low (0.7105) and in risk of further decline towards 0.7052, that marks the 38.2% Fibonacci of the "March 2020 multi-year low/October 2021 High " advance.

On the other hand, the Aussie defended 0.7105 and stages a recovery today, while the Daily chart points to oversold conditions, as per the Relative Strength Index. The last visit of the RSI in the sub-30 area, was after August's lows and had triggered a significant correction higher.

This gives AUD/USD the ability to push towards 0.7200-16, although a sustained improvement in sentiment will likely be needed for such moves. A break above, can pause the downward momentum and bring October's descending trend-line into the spotlight, but the area above mid-0.7200s seems well protected.


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Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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