AUD USD in focus ahead of Chinese data Trump inauguration

The AUD/USD has enjoyed an impressive recovery since the turn of the year. It has climbed from around 0.72 to a high of above 0.75 so far. But the good run of form may be about to end as it tests an in important resistance area ahead of upcoming key fundamental events: top tier Chinese economic data and Donald Trump’s inauguration.

China is Australia’s largest trading partner and so if the latest economic figures – due for release in the early hours of Friday – deviate significantly from expectations then we may see the Aussie move correspondingly sharply. The world’s second largest economy is expected to have grown by 6.7% in the final quarter of last year compared to the same quarter of 2015. If correct, growth would be unchanged from Q3. Meanwhile, industrial production is expected to have eased to 6.1% year-over-year in December from 6.2% the previous month. The other important numbers to watch form China include fixed asset investment and retail sales.

But the elephant in the room is Donald Trump’s inauguration tomorrow. The US President-elect’s speech will likely move the dollar and stocks sharply. Ahead of the inauguration, the dollar has been bought today against most currencies – as traders probably anticipate to hear ambitious spending plans from Trump – though not so much against the Aussie so far. But that could change during the Asian session overnight. As well as Trump’ inauguration, the dollar has been boosted further by the latest US macro pointers, which have been solid. Jobless claims fell while building permits and housing starts rose, as too did the Philly Fed Manufacturing Index. From Australia, the latest jobs numbers, released overnight, were mixed with the unemployment rate unexpectedly rising to 5.8% even as total employment rose by a larger-than-expected 13,500.

Ahead of the abovementioned fundamental events, the AUD/USD has arrived at a key resistance area, namely between 0.7560 and 0.7580. This area marks the last swing low prior to the rally that ultimately failed to clear that 0.7750-80 resistance zone. Previously support, the 0.7560-0.7580 area is the new resistance range: three attempts in as many days to break higher have all failed so far.

Interestingly, the price action leading up to this 0.7560-0.7580 resistance area looks very similar to price action prior to the last big downswing at the end of last year. If this price pattern is anything to go by then the Aussie could potentially drop again and this time go below 0.70 in the coming weeks. For this potential move to come to fruition, the sellers will first and foremost need to see a break back below the pivotal 0.7500 handle, where we also have the 200-day moving average residing. Once this condition is met then the path of least resistance would be to the downside again (as the move above the 200 MA would be considered a false break). Until that happens though, the bears will need to be nimble as the AUD/USD could just as easily break the abovementioned 0.7560/80 resistance area before potentially staging a more significant recovery. But for now, I am leaning more towards the bearish argument given the extended bullish run into a key resistance area.