AUD/USD mirrors commodity and EM complex of which are testing critical technical resistance

AUD/USD is currently trading at 0.6727 and between 0.6707 and 0.6745 and has been capped in its tracks from the correction from 2020 trend lows of 0.6622 20 pips north of a 78.6% Fibonacci retracement of the prior corrective highs. 

The coronavirus updates are making for volatility in markets and the bulls are struggling to break through resistance coming between 0.6750 and 0.6774 as the news spreads as fast as the virus itself that the latest figures in the Hubei province reported 242 new deaths and 14,840 new cases of the flu-like virus. That brings the worldwide death toll to at least 1,357 and the number of confirmed cases to more than 60,000.

DXY camping out on 99 handle 

Meanwhile, the DXY remains firm and is based on the 99 handle which is playing into the hands of the AUD bears. The US data was a slight disappointment though, with Consumer Price Index missing the mark with Headline CPI rising only 0.1% MoM, below consensus expectations at 0.2%. 

However, as analysts at TD Securities explained, strong OER and rents kept the 12m change in core prices at 2.3%, which remains consistent with the pace for the Fed's preferred core PCE measure remaining below 2%.

"All in all, the CPI report details were stronger than expected. While core inflation remained steady at 2.3% y/y, shelter prices are worth watching closely in the next few months. Meanwhile, core PCE inflation continues to run below core CPI inflation. As of December, the core PCE index was up 1.6% y/y — versus 2.3% for the core CPI." 

Subsequently, the US 10-year yields are off their worst levels of the day, trading between 1.5620% and 1.6340% which is supportive for the greenback. 

Eyes on copper, CRB & MSCI EM indexs index

Meanwhile, the commodity complex remains on a solid footing with copper and the CRB index both resting within a key resistance structure. However, failures here on a technical basis will most like lead to a sell-off in the antipodeans, especially if the US dollar can extend the upside on the 99 handle. The MSCI index is also meeting a threshold and a subsequent technical move to the downside could correlate to a bearish correction in AUD crosses also. 

US Retail Sales in focus

US Retail Sales tomorrow will be a critical data input for the DXY which could tip the balance one way or the other.  "For retail sales, as with payrolls, huge swings in unadjusted data make forecasting January especially challenging, but we anticipate a weak 0.0% reading for the key control series after a fairly strong 0.5% rise," analysts at TD Securities explained. 

AUD/USD levels