AUSTRALIAN DOLLAR, AUD / USD, AUD / JPY, IRON MINERAL, CORONAVIRUS RESTRICTIONS – TALKING POINTS:

• Surging iron ore prices and Australia’s success in suppressing the novel coronavirus may prop up the cycle-sensitive currency against its major counterparts.
• AUD / USD is aiming for momentum to multi-year highs as the RSI creeps into overbought territory.
• The bullish stacking of the moving average suggests that the AUD / JPY may extend its recent momentum to the upside.

IRON MINERAL PRICES, SUPPRESSION OF COVID-19 TO SUPPRESS THE AUD

The cycle-sensitive Australian dollar appears poised to outperform its major counterparts in 2021 as the island nation keeps the novel coronavirus at bay and continues to benefit from strong demand for its most valuable export, iron ore.

Although a new Covid-19 outbreak in New South Wales and Victoria has forced interstate borders to close, the case numbers are nowhere near the levels that forced Victorian Prime Minister Dan Andrews to enforce one of the toughest closings in the world in September last year.

The implementation of robust contact tracing schemes in the nation’s two most populous states has allowed venues to remain open, with mandatory use of masks and reduced capabilities indoors – the only notable adjustments to social distancing measures. This will likely allow Australia to continue its economic recovery relatively unabated.

Additionally, rising iron ore prices may also underpin the trade-sensitive currency over the medium term, as Chinese demand remains high and metallic rock continues to float above the psychologically imposing $ 1,000 mark.

DAILY CHART AUD / USD – EYE RESISTANCE AT 0.7800

The technical outlook for AUD / USD continues to favor the upside, as the price remains firmly above the 6 moving averages and remains constructively positioned above the psychological support at 0.7600.

With the RSI targeting a pullback above 70 and the MACD indicator traveling to its highest levels since July, the path of least resistance appears higher.

With that in mind, a retest of the 2020 high (0.7742) looks likely if support at the December 17 high (0.7640) holds firm, with a daily close above needed to focus expansion of Fibonacci of 127.2% (0.7801).

Alternatively, retracing below the 8-day exponential moving average can trigger a pullback to the confluent support at the Pitchfork median line and 78.6% Fibonacci (0.7573).

IG CUSTOMER FEELING REPORT

IG’s Client Sentiment Report shows that 37.70% of traders are net-long with a ratio of short to long traders of 1.65 to 1. The number of net long traders is 25.39% higher than yesterday and 3.75% lower than last week, while The number of net short traders is 7.27% lower than yesterday and 2.50% higher than last week.

We generally take a view contrary to crowd sentiment, and the fact that traders are net short suggests that AUD / USD prices may continue to climb.

The positioning is less net-short than yesterday, but net shorter than last week. The combination of current sentiment and recent swings gives us an additional mixed AUD / USD trading bias.

AUD/JPY DAILY CHART – 2019 HIGH COMING INTO THE CROSSHAIRS

AUD/JPY rates also look poised to extend their recent topside push, as price bursts through the psychologically imposing 79.00 mark.

With the MACD indicator and the RSI tracking firmly above their respective neutral midpoints, the path of least resistance seems to favour the upside.

A daily close above the 38.2% Fibonacci (79.17) would probably precipitate a test of the December 31 high (79.79), with a break above clearing a path for buyers to probe the 2019 high (80.72).

Conversely, falling back below 79.00 may neutralize near-term buying pressure and generate a short term pullback towards confluent support at the August high (78.46) and the 21-day EMA.

IG CUSTOMER FEELING REPORT

Retail trader data shows 34.89% of traders are net-long with a ratio of short to long traders of 1.87 to 1. The number of net long traders is 22.41% higher than yesterday and 23.48% higher than last week, while the number of net-short traders is 7.67% lower than yesterday and 22.97% lower than last week.

We generally take a view contrary to crowd sentiment, and the fact that traders are net short suggests that AUD / JPY prices may continue to climb.

However, traders are less short than yesterday and compared to last week. Recent swings in sentiment warn that the current AUD / JPY price trend could soon reverse down despite the fact that traders remain net-short.