AUD/USD clings to recovery gains, struggles to move back above 0.7100 mark

The AUD/USD pair refreshed daily tops during the early European session, albeit struggled to capitalize on the move and remained below the 0.7100 mark.

A combination of supporting factors prompted some short-covering move and assisted the pair to stage a goodish bounce from over three-week lows, around the 0.7020 region set in the previous day. The latest optimism about additional US fiscal stimulus measures remained supportive of the upbeat market mood, which, in turn, undermined the safe-haven US dollar and benefitted the perceived riskier aussie.

The US President Donald Trump fueled hopes for a stimulus breakthrough and said that he was willing to accept a larger aid bill despite opposition from his own Republican Party. The comments raised prospects for more government borrowing and sparked a selloff on the US bonds. The lack of demand for government debt exerted some additional downward pressure on the USD and remained supportive.

On the economic data front, the initial estimates showed Australian Retail Sales fell 1.5% MoM in September as against a 4% decline recorded in the previous month. The negative reading was largely offset by a solid sales solid 6.8% quarterly growth figures and provided an additional boost to the Australian dollar, assisting the AUD/USD pair to push through 50-hour SMA near the 0.7065 region.

However, increasing bets that the RBA will cut interest rates in November held bulls from placing any aggressive bets. Adding to this, concerns that the second wave of coronavirus infection could lead to renewed lockdown measures and prove detrimental for the already fragile global economic recovery further collaborated towards capping the upside for the AUD/USD pair, at least for the time being.

This make it prudent to wait for some strong follow-through buying before confirming that the AUD/USD pair might have bottomed out in the near-term and positioning for any further near-term appreciating move. Conversely, bearish traders are likely to wait for a sustained break through the key 0.7000 psychological mark, below which the pair might turn vulnerable to test sub-0.6900 levels.

Technical levels to watch