Aussie higher against the dollar as the RBA keeps rates on hold

Market Overview

There has been a continuation of a slightly dollar corrective theme that we have seen over the past few days. The main mover has though been the Aussie in the wake of the monetary policy announcement from the Reserve Bank of Australia. The Aussie has pushed higher against the US dollar as the RBA kept rates on hold at 2.0% and mentioned that economic conditions had “firmed a little” in the past few months. Although the RBA still left the door open for further potential easing (should falling inflation deem it necessary) there has been a shift in expectations over the potential for another rate cut by the end of the meeting. This has sent the Aussie sharply higher by almost 70 pips. Across the fore majors the dollar is losing a small amount of ground against all currencies, except the Kiwi which has failed to take inspiration from the Aussie.

Trading sentiment has remained positive overnight after European and then US markets have led the gains. A strong move higher has seen the S&P 500 closing above 2100 again although it is now approaching it next technical resistance. The support for the oil price continues to hold and this has helped energy sectors. The European markets today are trading around flat in early trading.

Traders will be looking out for UK construction PMI at 0930GMT which is forecast to dip very slightly to 58.8 (from 58.9) although this only accounts for just over 5% of the UK economy so should do little for sterling. The US factory orders are the main data release at 1500GMT, which are forecast to once again come in negative for the month at -0.9% (-1.7% last month).

Chart of the Day – EUR/GBP

Viewed across the past 8 months, Euro/Sterling has been trading in a broad sideways range. The support has tended to return around £0.9630/£0.7000 whilst the bull runs have generally been failing on a move towards £0.7400. There is a 50 pip pivot band around the middle of the range between £0.7200/£0.7250 which has been catching the intra-range moves. However, the outlook has taken a dive in the past couple of week and now with a decisive breach of the support around £0.7200 there is a move back towards the range lows once more underway. The daily candles show the strength in recent up-days has been mediocre, whilst the selling days have been decisive, with two bearish engulfing candles in the past five days. With momentum indicators in bearish configuration this would suggest intraday rallies should be seen as a chance to sell. Any move back towards the pivot band should now be seen as that opportunity. The intraday hourly chart shows initial resistance around £0.7160 before more important resistance in at £0.7200.

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Since the euro broke below the support of the 50 pip pivot band $1.1050/$1.1100 (in the wake of the ECB and then the PBoC giving easing signals) the EUR/USD pair has tested the pivot on 5 of the past 6 days. Each of those occasions the rebound has pushed into the resistance band on an intraday basis but on each occasion it has failed to sustain the move and closed below. The pivot band is now a consistent resistance. This has resulted in a “doji” candle being posted yesterday which reflects the lack of conviction in the rebound and this is a concern for the bulls now. The momentum indicators have picked up as the euro has stopped falling, but not in any real fashion that would suggest building momentum for a recovery. the downside pressure remains greater and I expect this rally to be seen as a chance to sell. The hourly chart shows the unwinding element to the momentum in this recovery but also that the rally has rolled over now. Initial support at $1.0987 which was a reaction low on Friday is an interesting signal and any decisive move below there on the intraday basis today could be the trigger for a pull back towards the $1.0894 low.

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Cable looked to try and continue the rally yesterday but the resistance once more at $1.5510 seems to have proved too much, at least for the time being anyway. The intraday reversal has left quite a negative candle and once which could almost be describe as a “shooting star” with a failure at a key resistance only to close towards the lows of the day. Not a great sign for the bulls. I am still mindful of the RSI which again seems to be struggling around the 60 mark too. There is a downtrend that I have drawn which links some lower highs of the past 10 weeks and although it was breached on an intraday basis yesterday I see that it is still an interesting guide. Today’s trading becomes important after the intraday sell-off yesterday. The bulls need to react positively otherwise the momentum in the move will be lost. The hourly chart shows a hint of a top pattern that would complete below $1.5400 and which would then imply a retreat to $1.5300.

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Dollar/Yen seems to have now lost its trend once again and has seemingly entered into another one of its sideways phases. The momentum indicators on the daily chart have lost the impetus and although the Stochastics are now looking to turn lower I think this is more a function of the settling of the sideways trading move. The pair has been trading between 120.15/121.50 in a 135 tick band now for the past 8 sessions  (included in those sessions have been both central bank meetings) and shows little sign of any real direction. I have a slight bias towards a retreat to the 119.60 pivot level, purely because that has been the case over the past few weeks, but for now the support at 120.15 is holding. The hourly chart is settling in and continues to show neutral and range bound signals on the momentum indicators.

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Another bearish candle has been posted on the daily chart as the gold price continues to slide, making it now four in a row since the hawkish (dollar strengthening) Fed meeting. The price continue to slide ever closer towards the bottom of the uptrend channel which comes in just below $1221 currently. However, there is little real support until $1104. Momentum indicators are increasingly bearish and reflect that intraday rallies will be seen as a chance to sell. The intraday hourly chart shows a consistent decline with lower highs and lower lows in the past 4 sessions and the early rebound is today is again likely to be sold into. The initial resistance comes in at $1142.60 but this becomes more important at $1150 which was a reaction high that came in just below an old support at $1151. I would expect the price to again pull lower to retest yesterday’s low at $1132.70.

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Having engaged the rally from around the key support at $43.20 (the actual intraday low coming in at $42.60), WTI has just started to stall again, once more with a consolidation around a Fibonacci retracement, this time around the 38.2% at $46.80. The outlook for daily momentum indicators is far more neutral now and with the intraday hourly chart showing support building in the range between $45.15/$45.50 the recovery is hanging on. The concern would be with the rally falling over and the failure to continue the rebound through the resistance at $47.50, however for now the traders seem to be weighing up their options,  with a failure of $45.15 seeing the outlook deteriorating once more and possibly a retreat towards the key lows again. A close above $47.50 would open the 50% Fibonacci retracement at $49.60. For now the outlook is in the balance.

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