AUD/USD holds firm after its post-FOMC breakout: Asian Open

Market Summary:

• FX majors essentially saw an extension of Wednesday’s moves on Thursday as the US dollar plunged for a second day to allow its peers to extend their gains, to various degrees
• GBP/USD and EUR/USD were the strongest performers as the BOE and ECB were not as dovish as markets had hoped and pushed back against any form of policy tightening, suggesting markets may have been expecting a too much following the Fed’s dovish pivot
• The ECB said that tightening policy was not even discussed, and the BOE said expect rates to remain high “for an extended period”
• EUR/USD rallied over 1% during its best day in 22 and now sits just pips beneath the November highs, the DAX hit a fresh record high of 17k but failed to hold on to gains and left an ominous bearish outside day (but the rumour, sell the fact?)
• GBP/USD rose 1.3% during its best day in 22 to close at a 4-month high, allowing the underperforming FTSE to close at a 41-day high
• The RBA will be forced to retain their hawkish tone as Australia’s job growth exceeded expectations again in November, with the baulk of the 61.5k jobs added being full time and the participation rate hitting a new all-time high. Sure, unemployment rose to 3.9% but this is still not ‘recessionary’ by historical standards.
• Gold posted modest gains on Thursday but formed a small shooting star day to suggest a period of consolidation or a retracement could be approaching
• Crude oil prices rose for a second day after a false break of 68.50, and given the depth of the move from the September high then I am now monitoring its potential for a bullish reversal – and these past two days suggest one could be forming to my technical eyes

Events in focus (AEDT):

• 09:00 – Australian manufacturing and services PMIs
• 11:30 – Japan’s manufacturing and services PMIs
• 12:30 – China house prices
• 13:00 – Industrial production, fixed asset investment, retail sales, unemployment rate, NBS press conference
• 18:45 – French CPI
• 19:15 – French flash manufacturing, services and composite PMIs
• 19:30 – German flash manufacturing, services and composite PMIs
• 20:30 – UK flash manufacturing, services and composite PMIs
• 01:15 – US flash manufacturing, services and composite PMIs

ASX 200 at a glance:

• The ASX 200 posted its best day this year and closed just shy of 7,400 as it tracked Wall Street and APAC higher following the relatively dovish Fed meeting
• All 11 sectors posted gains, lead by real estate and info tech, with the ASX now on track for its third bullish week
• SPI 200 futures rose 0.65% to point to a gap higher for the ASX cash market, although the extended moves on Wall Street ad early signs of exhaustion suggest ASX bulls could be cautious and not expect another strong close today like we saw yesterday

AUD/USD technical analysis (1-hour chart):

If I look at AUD/USD in isolation, I see a classic consolidation following a strong bullish move – and that could point to another burst higher. However, seeing as AUD/USD only marginally closed above the December 4^th high, NZD/USD failed to close above its own cycle high, USD/CHF failed to close beneath its respective cycle low and USD/JPY only marginally closed beneath its 200-day MA – I see early signs of exhaustion for US dollar weakness. Add n the fact that we’re approaching the weekend and that can prompt profit taking from US dollar bears, upside potential for AUD/USD may be limited heading into the weekend.

What I do like is how the consolidation is respecting the Q2 open price, so any pullback towards it could tempt bears to enter ling with a stop beneath the Q3 open. A modest target could include the daily R1 pivot, 0.6739 high – a break above which brings 0.6760 into focus near the daily and weekly R2 pivots.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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