AUD/USD: Directs pullback moves toward 0.7100 amid risk-on mood

• AUD/USD seesaws near the high of Monday’s corrective recovery.
• Hopes of further money supply from the US and Europe join expectations of virus vaccine to boost market sentiment.
• Equities, commodities benefited the most whereas the US dollar is still not on the bears’ radars.
• US Presidential Election debate is the key event while Fedspeak may offer intermediate clues.

AUD/USD keeps Monday’s recovery moves while taking rounds to 0.7070 at the start of Tuesday’s Asian session. In doing so, the aussie pair respects Friday’s U-turn from the lowest in 10 weeks as the market environment benefits from the hints of further stimulus, be it monetary or fiscal, by the US and European policymakers. Also favoring the mood is Brexit-positive sentiment and hopes that the coronavirus (COVID-19) vaccine will be out soon.

Not a trend change…

Despite the AUD/USD traders’ relief from the heaviest drop in many weeks, the quote is not eligible to stand on the bull’s radars. The reason could be many starting from the broad market favor for the US dollar to the on-going COVID-19 resurgence that dampens the hope of economic recovery from the virus-led lockdowns. Also challenging the run-up could be the Reserve Bank of Australia’s (RBA) bearish bias and cause of concerns for China, Australia’s largest customer.

Even so, global markets cheered the hints of further money flow from the US and Europe. Following US House Speaker Nancy Pelosi’s optimism towards the COVID-19 aid package discussion, European Central Bank (ECB) President Christine Lagarde reiterated that the Governing Council, “continues to stand ready to adjust all of its instruments, as appropriate”. It should also be noted that expectations of China’s local press concerning no change in monetary policy and signals of manufacturing recovery also helped build the previous day’s consolidation.

Against this backdrop, Wall Street managed to keep Friday’s gains whereas the US 10-year Treasury yields also stood positive by the end of Monday. Further, Gold regained $1,880 whereas the WTI crossed $40.00.

Looking forward, the economic calendar remains mostly silent during the Asian session and hence risk catalysts are mostly in demand. It should, however, be noted that the market’s cautious sentiment ahead of the first US Presidential Election debate between the current leader Donald Trump and the challenger Joe Biden may probe the bulls going forward. Also, the Federal Reserve policymakers’ likely optimism, observed from the latest comments, can renew the US dollar buying, which in turn will question AUD/USD buyers.

Technical analysis

Successful bounce off 100-day SMA, currently around 0.7010, needs not only the break of the 0.7100 threshold but clearance of the August 12 low surrounding 0.7110 to probe 50-day SMA level close to 0.7205. Alternatively, a downside break of 0.7010 will require validation from the 0.7000 psychological magnet before recalling the bears.