The Australian dollar only gained slight support from Chinese data: China's GDP for Q4 exceeded its annual forecast. This fact was initially ignored by AUD/USD pair traders, amid general tension associated with the process of transferring power from Trump to Biden. Nevertheless, investors still made good use of this fundamental factor during today's Asian session – The Australian dollar left the weekly lows and returned to the level of 0.77. The US dollar index, in turn, remained in a flat, namely within the middle of the 90th mark. In this case, the upward impulse has clearly faded. At the beginning of the current trading week, the US dollar was moving clearly by Friday's inertia, amid an almost empty economic calendar and closed US trading floors in celebration of Martin Luther King Day.
Today, the currency market has started working fully. There is an assumption that the dollar's general decline is associated with two factors. First, the overall demand for protective tools, which include dollars, has declined. It is possible that the market has changed its attitude to the events that are currently taking place in the States. The unusual tightening of security measures in Washington also initially triggered anti-risk sentiment. Thousands of soldiers who hovered around the streets of the American capital, as well as the barricades around the Capitol, alarmed investors. Thus, the initial growth of the US dollar was very justified.
But the growth of the dollar index has taken a pause at this time, although the military in Washington has not become less. Perhaps, the market has assessed what is happening from a different angle: given the preventive measures taken, the probability of the implementing attacks that could prevent the inauguration of the newly elected US President is reduced to zero. According to CNN, the ceremonial procedure will be guarded by a total of about 25 thousand soldiers of the National Guard. This number is more than three times the number of active American troops currently in Afghanistan, Iraq and Syria combined. Given this fact, it is difficult to imagine a repetition of the resonant and tragic events that occurred on January 6, when Trump supporters stormed the Capitol.
Here, it should be noted that the dollar bulls did not retreat, but only delayed their progress on the wave of declining interest in defensive assets. This circumstance allowed the buyers of AUD/USD to partially regain their lost positions. However, it is too early to talk about the priority of long positions in the pair. First, Janet Yellen will make a speech in the Congress today. Secondly, traders still need to endure Biden's inauguration, which will take place tomorrow. Lastly, key data on Australia's labor market growth will be released on Thursday. This release is critically important for the Australian dollar, so it may also affect the dynamics of the AUD/USD pair.
In view of today's almost empty economic calendar, traders in dollar pairs will be focusing their attention on the speech of the future US Treasury Secretary Janet Yellen, who is known to be the Fed's Chairman before Jerome Powell. According to the results of today's hearings in the relevant committee, senators must approve her candidacy for the proposed post. Most experts believe that Ms. Yellen will provide background support to the US currency, as she will lobby for a massive aid package (the so-called $ 1.9 trillion "salvation plan for America") in Congress, which Biden presented recently and will abandon the practice of the Donald Trump administration in relation to the US dollar, declaring her commitment to market regulation of the national currency. On the one hand, the above rhetoric can really inspire dollar bulls to another price breakthrough. On the other hand, the content of Yellen's opening speech has been in the American press for the second day, so it is unlikely that traders will react too much to this. But the intrigue remains, as the former head of the Fed will answer additional questions from senators, which may excite the markets. In my opinion, the US currency will react to Janet Yellen's speech either positively or neutrally – there is a low probability of a negative reaction.
In addition, a large-scale recovery of AUD/USD is unlikely to be talked about until Joe Biden actually takes office or until the inauguration. Despite the unprecedented security measures, the market will still be wary of this event, due to a strong escalation of the situation. Due to this, the US dollar index is not showing a downward trend, but remains in flat.
Lastly, the Australian dollar still has to pass another kind of test. Australian key data on labor market growth will be released on Thursday. This release is important not only in the context of short-term and medium-term growth prospects for the AUD/USD pair, but also in the long-term. At the December meeting, RBA members expressed concern that labor market indicators are recovering at an "uneven" pace. And almost immediately after it, November data were published, which favored the AUD. First, the unemployment rate rapidly declined to 6.8%. Secondly, the growth rate in the number of employed soared by 90,000 against the forecasted 40,000, which is due to the growth of the full employment component. If the December figures confirm November's trends (positive dynamics will continue based on preliminary forecasts), then the Aussie will receive a very strong reason for its recovery.
Therefore, the US dollar is likely to prove itself once again in the short term, given the above fundamental factors. In the context of the AUD/USD pair, this means that the bears will retest the level of 0.7660 (lower line of the Bollinger Bands indicator on the daily chart). Sellers tried a lot of times to move under this target throughout this month, but it ended unsuccessfully every time. In this case, it is better to change short positions with long ones in this price area, with a mid-term target of 0.7780 (local high).
