AUD/USD: Holds 0.7700 even as risk-off mood, solid US dollar favor bears

• AUD/USD gaps down as the trading week begin.
• Fresh fears of virus, reflation and US-China tussle weigh on sentiment.
• Fed let the SLR expire by March-end, Aussie Retail Sales disappointed.
• US Treasury yields stay firm, equities drop as markets await Fed Chair Powell’s testimony.

After two consecutive days of losses and a weekly negative closing, AUD/USD begins the week’s trading with a downside gap to 0.7706, currently picking up bids to 0.7720, on early Monday morning in Asia. Fears of bond taper and the coronavirus (COVID-19) resurgence, not to forget vaccine shortage, recently led to the quote’s declines along with downbeat figures at home. Though, a lack of fresh catalysts seems to help the quote fill the week-start gap-down.

Virus woes add to bearish catalysts…

As if the reflation fears weren’t enough, the recent pick-up in the covid cases in Europe and chatters over vaccine shortage add to the market fears. Leading bloc economies have again witnessed a surge in the virus figures amid a tussle between Brussels and London over the vaccine supply as well as safety concerns over AstraZeneca. Amid these plays, Germany is set to extend virus-led activity restrictions to April while the UK’s calls to keep lockdown measures until October, with diminishing strength, also portray virus fears.

Elsewhere, the Fed’s confirmation to let the Supplementary Leverage Ratio (SLR) concession expire at the end of March, as planned, suggests that the fears of reflation and bond tapering aren’t all fake.

On the geopolitical front, the US-China talks in Alaska weren’t upbeat while North Korea and Washington jostle over arms, together with Iran-American tension. Recently, Saudi-led coalition jets attacked Houthi targets in Yemen's capital and the same could tease Iran-backed military to reply and escalate age-old rivalry.

Amid these plays, the US 10-year Treasury yield stays strong near January 2020 tops whereas the US dollar index (DXY) also marked gains. The same weigh on the equities and Australian dollar as they’re risk barometers.

Looking forward, a lack of major data/events, except for the People’s Bank of China’s (PBOC) monetary policy meeting, can keep the AUD/USD prices pressured. China’s central bank is more likely to keep the current monetary policy unchanged with a benchmark rate of 3.85%. During the weekend, PBOC Governor Yi Gang said that the Bank still has space to expand liquidity, which in turn signals no major surprises from the PBOC.

Technical analysis

AUD/USD sellers await a decisive break below 50-day EMA, currently around 0.7720, to confirm the downside towards a fresh monthly low near 0.7620. Alternatively, bulls require a clear upside break of 0.7840 to recall the 0.7900 threshold on the chart. Above all, technical indicators suggest bears firmly hold the reins.