AUD/USD performed well late last week following better Australia retail sales nL4N29F02W, fading geopolitical concerns and anticipation of the U.S and China signing a Phase 1 trade deal nL1N29E0ZSnL1N29I1PF.
But the lift may prove temporary and the downtrend could resume once the trade deal is announced, most likely on Wednesday in the U.S. The market has been pricing in the trade deal for weeks and once it is signed, the details may not inspire optimism on further progress towards ending the trade war.
The focus will also shift back to the negative impact of the bushfire crisis on Australia's regional economies, the ongoing drought and the potential for the RBA to ease the cash rate at its February meetingnL4N29I095. The AUD/USD faces technical resistance around 0.6920 where the 10 and 21-day moving averages converge with the 38.2 Fibonacci retracement of the 0.7032-0.6849 move.
That resistance may break in a knee-jerk reaction to the trade deal, but the 61.8 Fibo of the move should cap any rallies around 0.6960/65. Selling AUD/USD with a stop above 0.6970 is the favoured strategy in the current environment.
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