AUD/USD Forecast: Battle of Wills Around 0.7000

AUD/USD Current price: 0.7010

• Chinese and Australian data released overnight pointed to a steeper economic slowdown in December.
• Equities decline, triggered by fears, favors an AUD/USD break below 0.7000.

The AUD/USD pair fell to 0.7001, its lowest since February 2016, hovering nearby and miraculously retaining the 0.7000 figure despite equities' sharp declines. The trigger behind the ongoing risk-averse scenario was the December Caixin Manufacturing PMI which showed that business activity in China has fallen into contraction territory, with the index down to 49.7 from the previous 50.2. The RBA Commodity Index SDR, considered an early indicator of export price changes, fell in December to 10.5% YoY, while the November figure was downwardly revised to 13.4%. Fears of a global economic slowdown have ruled the financial world in the second half of 2018 and things seem to have worsened at the end of the year, with no signs of improvement, suggesting it will get worse entering 2019.

Another factor spurring a gloomy sentiment is the US government partial shutdown. There were some news making the rounds indicating that Trump was reaching out to Congress to put an end to it, but soft growth figures weighed more.

The final versions of December European Markit Manufacturing PMI were out, with soft readings across the region reinforcing the ongoing fears. Later today, the same report for the US will be out, foreseen at 53.9, unchanged from the flash estimate.

Technical readings in the 4 hours chart indicate that the risk is skewed to the downside, as an intraday advance was contained by selling interest aligned around a bearish 20 SMA, which turns lower well below firmly bearish 100 and 200 SMA, these last far above the current level. The Momentum indicator in the mentioned chart heads modestly lower below its 100 level while the RSI heads firmly lower, now at around 33 and in line with further slides ahead, to be confirmed on a break below 0.6990, now the immediate support.

Support levels:  0.6990  0.6955 0.6920

Resistance levels:  0.7045 0.7080 0.7110    

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