Morning Report: RBA On Hold Prompts AUD Bounce

 | Mar 03, 2015 05:48AM ET

KEY DATA RELEASES TODAY (GMT) :

0930 GBP Construction PMI exp 59.0 v 59.1
1000 GBP BOE Gov Carney Speaks

OVERNIGHT:

USD/JPY manages to close above the psych 120 level last night in spite of somewhat weaker US data (although PCE data came in within expectations). It has been a different story in Asian trading, with reports of domestic banks being better sellers throughout the session presumably for exporter and repatriation interests. The pair’s heavy tone was magnified after comments from Abe’s adviser Honda, talking down the pair and further easing, Honda said the BOJ should not react to lower oil prices weighing on inflation. Recall, Honda made similar comments late last year when USD/JPY was also trading above 120. Market still holds a bullish view in both the medium and short-term, especially going into Friday’s NFP figures, but players seem content to respect the ranges until a break and close above 120.50.

The EUR appears content to pivot around 1.1200 for now as the story for the pair is elsewhere until Thursday’s ECB decision and press conference. The recent intraday 1.1160­1.1240 remains in play for now with little in way of assertive sentiment overall market remains bullish the USD with 1.1280 the key level for the short to medium term bearish EUR view.

GBP’s gains both against the USD and in the crosses after the stronger ­than ­expected manufacturing PMI print were fleeting, indicative of a market turning more neutral the currency after recent gains especially as political risks begin to materialise. Market starting to look for tactical opportunities to turn bearish cable, especially if the recent trend of strong domestic data starts to turn.

RBA held the cash rate unchanged at 2.25% which helped AUD/USD recover to a high of 0.7842. The statement was as expected, however, it also noted in the statement that “further easing of policy may be appropriate over the period ahead”. And, “the board will assess the case at forthcoming meetings.” Thus, the RBA is keeping an easing bias and which likely translates into an eventual easing in April or May. Also released from Australia, building approvals rose 7.9% mom in January vs expectation of -1.8% mom fall. Current account deficit was narrower than expected AUD -9.6b in Q4

Looking ahead, UK construction PMI and Eurozone PPI in European session.

PRICE ACTION OVERVIEW:

EUR: While 1.1270 caps upside targets 1.10/09 above 1.1280 suggest false downside break
GBP: While 1.5480 contains upside reaction, down trend to resume targeting 1.49
JPY: While 118.50 supports expect break of 120.50 and target 2014 highs beyond
CAD: While 1.2350 trendline supports 1.28 next upside objective ahead of key 1.30
AUD: While .7860/80 contains, downtrend to resume targeting .75

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KEY TRADES:

FX Pair Short Term Position/Date Entry Level Target Stop Comments
EUR/USD Bearish Sell/02 Mar 1.1165 Open 1.1285
GBP/USD Bearish Sell/03 Mar 1.5362 Open 1.5562
USD/JPY Neutral Await new signal
USD/CAD Neutral Await new signal
AUD/USD Neutral Sell/02 Mar .7760 Open .7860

ANALYSIS:

EUR/USD Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

  • While 1.1280 caps any upside corrections immediate focus is on a retest of year to date lows. A break of 1.1280 suggests return to broader 1.12 -1.15 range.
  • Order Flow indicators; OBV tick up form retest of lows, Linear Regression and Psychology bearish
  • Shorts in play, please see key trades for details