US Dollar, US Jobless Claims Data, Hong Kong Security Laws – TALKING POINTS

  • British Pound fell on BoE after initially spiking. AUD may fall on Hong Kong risks
  • US Dollar rose after jobless claims report hopes of speedy recovery were shaken
  • AUD/USD selloff could accelerate after pair was rejected at second-tier resistance

Wall Street trade ended on a somewhat mixed note. The S&P 500 and Nasdaq indices closed 0.06 and 0.33 percent higher, respectively, while the industrial-leaning Dow Jones benchmark closed 0.15 percent lower. Foreign exchange markets reflected a broad, risk-off tilt with the US Dollar and Japanese Yen ending the day in the green while their growth-oriented counterparts like AUD and NZD closed in the red.

Following the Bank of England rate decision,the British Pound initially rallied against its G10 counterparts before turning lower and ending the day as the session’s biggest loser. Sentiment soured as policymakers cooled further rate cut expectations. GBP/USD’s decline – and generally the Greenback’s rise versus its peers – accelerated after domestic jobs data showed a spike in initial and continuing jobless claims.

Friday’s Asia-Pacific Trading Session

With a relatively sparse data docket, Asia-Pacific markets will likely turn their attention to three key geopolitical risks. The first is growing tension between India and China after an incident in the Himalayan Mountains a few days ago sparked cross-asset volatility. The second is another coronavirus outbreak in Beijing that echoes worldwide concern of a second spike in Covid-19 cases.

The risk there is the prospect of re-implementing or extending growth-hampering lockdown measures. The third will be the National People’s Congress Standing Committee’s discussion of implementing a new security law in Hong Kong. China’s state-run Xinhua News Agency reported that officials will be reviewing a draft of the bill today, though it no mention was made about when the law will be voted on.

Beijing’s actions in the special administrative region have driven a wedge in US-China relations which were already fragile to begin with. Consequently, an escalation of tensions there could ripple out into financial markets and put growth-oriented assets like the Australian Dollar at risk. Conversely, in this environment the haven-linked US Dollar may rise and further exacerbate selling pressure in AUD/USD.

AUD/USD Technical Analysis

AUD/USD’s descent may accelerate in the coming days amid what appears to be deteriorating confidence in the pair’s upside momentum. The timeline of capitulation starts with the clean rejection of the early-January swing-high at 0.7018. The second marker is AUD/USD’s inability to clear lower-tier resistance at 0.6911. Consequently, with the ceiling standing firm, the pair may retrace their gains until it hits support at 0.6642.

AUD/USD – Daily Chart

Chart showing AUD/USD

AUD/USD chat created using TradingView

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter





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