AUD/USD clings to recovery gains, Fed expectations might restrict further upside

The greenback remained on back-foot through European session on Monday, with the AUD/USD pair building on to its recovery gains from nearly 5-month low touched during early Asian session. 

Currently trading around 0.7365-70 band, just few pips from session peak level near 0.7380 region, the pair snapped three consecutive days of sharp slide below the very important 200-day SMA and reversed part of Friday's depreciating move. A broad based greenback retracement, as measured by the overall US Dollar Index, has been the key factor contributing to the pair's recovery from the vicinity of 0.7300 handle (0.7310 level), marking its lowest level since June 24. 

Moreover, recovery in commodity prices is also supporting recovery in commodity-linked currencies - like Aussie, following a slide of over 450-pips from multi-month highs touched during the early part of November. However, growing expectations for an eventual Fed rate-hike action and aggressive fiscal stimulus by President-elect Donald Trump's administration might come to the rescue of the US Dollar and restrict any further recovery for the major. 

Next in focus would be speech from RBA Assistant Governor (Economic) Christopher Kent, during early Asian session on Tuesday ahead of Wednesday's Australian construction output data for the third quarter of 2016. Also in focus would be the release of monthly durable goods orders from the US and minutes from FOMC latest monetary policy meeting on Wednesday. 

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, notes, "Short term, the upward move can extend according to the 1 hour chart, as the price is pressuring its highs while holding above a now flat 20 SMA, while technical indicators head north within positive territory. In the 4 hours chart, however, the upward potential is limited, as technical indicators have lost upward strength after correcting extreme oversold readings, whilst the 20 SMA maintains a sharp bearish slope around 0.7400, the level to surpass to see the corrective movement extending during the upcoming sessions."

"Support levels: 0.7330 0.7290 0.7250
Resistance levels: 0.7400 0.7440 0.7485"

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