AUD/USD: Recovery moves eye 0.7700 amid cautious optimism

• AUD/USD begins the week with a 10-pip gap to the south despite Friday’s heavy run-up.
• Market sentiment stays positive amid stimulus hopes, vaccine developments even as Friday’s US employment came in mixed.
• Wall Street benchmarks flirted with record top, US 10-year Treasury yields rose to 11-month high.
• No major data/events in Asia keeps risk catalysts on the driver’s seat.

AUD/USD bounces off 0.7659, following a downside gap to start the week from 0.7669, during the initial Asian trading on Monday. The pair marked the heaviest gains in a month during Friday following mixed US employment data and risk-on mood.

While the recent comments from US President Joe Biden and Treasury Secretary Janet Yellen have been positive to the risks, a lack of major catalysts at home restricts the risk barometers’ reaction to the news.

Optimism all around…

With the US Democratic Party members’ ability to push President Biden’s $1.9 trillion covid relief plan through the Senate, which in turn leads the package to return to the Congress for final approval, global markets are expecting the proposal to become the law despite Republicans’ rejection to go beyond $700 billion. Also favoring the hopes of the much-awaited aid package are the comments from the US policymakers and Fed members suggesting the need for the relief.

Read: US President Biden: women dropping out of workforce, closed schools are “national emergency” – CBS

Elsewhere, a steady jump in the vaccinations amid bumpy productions and deliveries keep the traders’ hopeful of overcoming the pandemic sooner or later. Though, the latest news from the Financial Times (FT) quotes a study saying that the Oxford/AstraZeneca vaccines not effective against the South African variant. Also on the risk-negative side were news of a second hotel quarantine worker to test positive for the coronavirus (COVID-19) in Melbourne. 

Talking about the data, the US employment data for January flashed mixed signals with the headline Nonfarm Payrolls (NFP) rising by 49K versus 50K expected. However, the previous readings were revised down from -140K to -227K. On the contrary, the Unemployment Rate improved to 6.3% and came in better than analysts' estimate of 6.7%.

It should be noted that the Reserve Bank of Australia’s (RBA) cautious optimism during the last week probes the AUD/USD bulls while the US dollar gains add to the pair’s upside challenges.

Against this backdrop, the Wall Street benchmark stayed strong by the end of the week while the US 10-year Treasury yields rose to the fresh high since March 2020.

Moving on, a light calendar in Asia requires market players to keep their eyes on the risk catalysts like stimulus news, vaccine developments and US-China tussle for fresh impulse.

Technical analysis

Having regained above 0.7640-45 resistance, now support, AUD/USD is up for attacking 21-day SMA level of 0.7693. However, any further upside will have to cross a downward sloping trend line from January 14, at 0.7735 to convince the bulls. Meanwhile, fresh declines below 0.7640 will have a 50-day SMA level of 0.7627 and the monthly bottom around 0.7560 to entertain the short-term sellers.