Market Brief: Optimism on Trade Deal Buoys Hang Seng Index, Shanghai Composite, AUDUSD

Summary:
• Asian equities and risk currencies are up in today's Asian session on optimism about the US-China phase one deal. Can AUDUSD rally to its December highs?

The Hang Seng Index is trading into bullish territory today as risk appetite dictates market sentiment. Hong Kong’s stock index is up over 275 points or 0.95% at 28,910.0. The Shanghai Composite Index is also in the green by 23.279 points or 0.75% at 3,115.57. On the other hand, Japanese markets are closed today for the Coming of Age Day in Japan.

Optimism on Phase One Deal

Why are investors in a good mood in today’s Asian session? It is mostly because the US and China are scheduled to sign their phase one deal this week. Investors are looking forward to the amount of purchases China has to make on US goods. Generally, there seems to be optimism about the deal. Along with this, it is expected that an announcement will be made regarding semi-annual Comprehensive Economic Dialogue. Sources say that the two countries will revive these said discussions for economic reform. The phase one deal and dialogue are scheduled to be announced on January 15.

Inflation Data from Australia Released Today

In terms of economic data, only Melbourne Institute’s Inflation Gauge report for December was released. It came in higher at 0.3% than November’s 0.0% reading. Consequently, and because of risk appetite, has been trading 0.24% higher above the 0.6900 handle. Meanwhile, NZDUSD is up 0.16% at 0.6646 while USDJPY is up by 0.15% at 109.62.

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AUDUSD Outlook

On the daily time frame, we can see that sellers have managed to push AUDUSD below support at the rising trend line when you connect the lows of November 29, December 10, and December 18. Since then, the currency pair was able to pare some of its losses back to the 38.2% Fib level (when you draw the Fibonacci retracement tool from the high of December 31 to the low of January 9). This area also seems to coincide with the pair’s previous highs. Reversal candles around 0.6925 could mean that sellers may push AUDUSD down to trend line support at 0.6840 (from connecting the lows of October 1 and November 29).

However, a bullish close above this price will invalidate the resistance level. AUDUSD may soon rally to its December 31 highs at 0.7030.