AUD, APAC Stocks May Trim Gains. Is Bullish Sentiment Fading？

Australian Dollar, Asia-Pacific Stock Markets, Coronavirus – TALKING POINTS

• Australian Dollar could suffer with Asia-Pacific stocks amid signs of sentimental fragility

• Euro rose after ECB announced bigger-than-expected addition to virus stimulus package

• AUD/JPY is reaching into a key inflection range – will it hang onto the ledge or fall off？

Wall Street ended the day mostly in red, with the S&P 500 and Nasdaq indices closing 0.34 and 0.69 percent down, respectively. Crude oil prices ended the day modestly higher though gold and bond prices fell. Foreign exchange markets showed a somewhat mixed picture. The anti-risk Japanese Yen was down against its G10 counterparts along with the Canadian and US Dollars while SEK and NOK relaxed in the green.

US jobs data soured sentiment and temporarily pushed the anti-risk US Dollar higher against its counterparts. Initial jobless claims came in higher than expected at 1877k, over 40k more than the 1833k estimate. The prior number was also revised to show a 3k increase from 2123k to 2126k. These statistics sent a chilling reminder to buoyant investors that the consequences of the coronavirus pandemic have yet to be fully revealed.

The Euro soared for an eighth consecutive day, resulting in its longest winning streak since 2011 following the ECB rate decision. Monetary authorities surprised markets after they announced an unexpectedly-large increase to its emergency purchasing program known as the Pandemic Emergency Purchase Program (PEPP) by 600 billion euros.

EUR/USD closed almost one-percent higher and is at its highest point since March. Investors likely cheered the central banks efforts to support growth, boosting equities and sinking USD. The extra stimulus also pushed sovereign bond yields lower on debt issued by economically distressed states like Italy that were hit particularly hard by Covid-19 and helped lift the Euro.

Fridays Asia-Pacific Trading Session

With a bare data docket ahead, foreign exchange markets will likely place their focus on macro-fundamental risks. Asia may inherit the mixed dynamics of Wall Street which could see AUD and NZD trim some of their gains along with emerging market FX. Fading market optimism may result in a pullback from an impressive rally in sentiment-linked assets and could push the anti-risk Japanese Yen and US Dollar higher.

AUD/JPY Analysis

Since mid-late March, AUD/JPY has surged over 20 percent after bottoming out at an 11-year low at 66.046. The pair is now at the lower tier of a key inflection range between 75.925 and 76.320. If AUD/JPY is able to clear it with follow-through, this could lead to a retest of former support-turned-resistance at 77.736. However, if the pair is unable to clear 79.925, capitulation could inspire additional sellers to enter the market.