Reversal lacks strength as risk appetite looks fragile

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• AUD/USD is facing hurdles in stretching its recovery above 0.6750 despite upbeat Australian Retail Sales data.
• The Aussie has formed a Hammer candlestick pattern near the crucial support plotted near 0.6710.
• A pullback move to near five-period EMA cannot be ruled out.

The AUD/USD pair is struggling to stretch its recovery above the 0.6750 resistance in the Asian session. A recovery move in the Aussie asset from the round-level support of 0.6700 lacks strength as the risk-off mood has not disappeared yet. The US Dollar Index (DXY) has attempted a recovery after building a cushion around 104.30. However, a sideways performance is widely anticipated after a vertical downside move and ahead of the release of the United States ISM Manufacturing PMI data.

S&P500 futures have added more gains after registering a modest recovery on Monday. The 10-year US Treasury yields are struggling to sustain gains above 3.92%.

The Australian Dollar has failed to find significant bids despite the release of the upbeat monthly Retail Sales (Jan) data. The Australian Bureau of Statistics reported the monthly economic data at 1.9%, higher than the consensus of 1.5%. In December, Retail Sales contracted by 3.9%.

AUD/USD has formed a Hammer candlestick pattern near the crucial support plotted from December 29 low at 0.6710. The formation of Hammer candlestick indicates an emergence of responsive buyers as they consider the asset a ‘value buy’ now after a sheer downside.

It is worth noting that the asset has diverged extremely from the five-period Exponential Moving Average (EMA) at 0.6768. Extremely shorter-term EMAs usually remain sticky with each other. A case of divergence results in a reversion of prices towards the EMA. Therefore, a pullback move cannot be ruled out.

The Relative Strength Index (RSI) (14) has slipped into the bearish range of 20.00-40.00, which favors a downside momentum.

Should the Aussie asset break below Monday’s low around 0.6700, US Dollar bulls will drag the asset towards December 7 low at 0.6668 followed by December 20 low at 0.6629.

On the contrary, a break above February 23 high at 0.6842 will drive the asset toward February 21 high at 0.6920. A break above the latter will expose the major for more upside towards the psychological resistance at 0.7000.

AUD/USD daily chart