RBA On Hold But Ready To Act
Swissquote Bank Ltd | Apr 05, 2016 07:55AM ET
Forex News and Events
Heads up…Expect Fed comments to drive volatility
In an uncertain environment one thing has been certain, Fed comments have driven USD volatility. In what has become confusing gamesmanship between the doves and hawks, Chicago Fed President Evans will speak today. Evans has been one of the most consistent doves on the committee and is likely to support a rate path that includes two hikes in 2016. He will be discussing key economy and monetary policy topics. There is plenty of room here for market-disrupting comment, especially considering that investors are becoming more comfortable with a rate hike in June. Fed fund futures suggest approximately a 50% probability of a 25bp raise in June, so any comments that might tip the balance could have a short term direction impact. Elsewhere, ISM non-manufacturing is expected to increase to 54.0 from 53.4 in Feb. Rebound in business activity and strong service sector payroll gains should help the survey. However, this will have a limited impact on expectations for Fed policy and therefore a limited effect on USD. We remain bearish on the USD based on a cautious Yellen and soft international conditions, decreasing the probability of rate hikes in 2016. To derail USD weakness (especially versus EM and high beta currencies) we would need a clear catalyst such as a breakdown of Greek-Troika debt negotiations or Brexit.
RBA holds but risk of rate cut increase
As was widely anticipated the RBA kept the cash rate target unchanged at 2.00%. In addition as we had suggested yesterday the accompanying statement maintained a dovish bias while providing stronger comments around the strength of the AUD. The RBA raised the stakes on the currency indicated “appreciating exchange rate could complicate the adjustment under way in the economy” much clearer then Marches off handed comment that the currency was “adjusting”. Yet, while the central bank indicated their discomfort with the strong AUD they did seem to understand that the root cause, of recovering commodity prices and easing in global monetary policy. We maintain our expectations for one additional 25bp cut in 2016 based on falling inflation and weak economic conditions. Australia 1Q inflation report will be released 27th April which should indicated that inflation has accelerated moderately to 1.8%y/y from 1.7% in 4Q. As the RBA has included the verbiage” assess the outlook for inflation” the slower pace will be of concern. Marginal growth rate of 2.5% looks decent except for downside risks increasing as low commodity prices linger and further deterioration in labour markets anticipated the RBA will be forced to act. But perhaps the strongest force working against the RBA is yield | risk seeking investors how are likely to bid up the AUD in this decreasing volatility environment. Sustained AUD strength will continue to weigh on growth (deterioration in economic outlook), further tighten monetary and fiscal conditions and demand a RBA monetary response (not just verbal intervention). In this environment we are bullish on AUD/USD watching for a quick move to 0.7620 reaction highs.
Get The News You Want
Eurozone: weak retail sales expected
March final Eurozone retail sales printed in lower than the previous release at 0.2% m/m vs 0.4% m/m in February. Recent surveys have also shown that Eurozone consumer sentiment dropped in March and it is important to note that this survey was actually carried out before the recent events in Brussels. For the time being, European fundamentals are clearly not picking up (economy keeps on contracting) and the ECB's quantitative easing has so far not delivered the expected results. It is also worth noting that the impact of lower oil prices (despite recent rebound) is threatening the inflation outlook.
However, we believe that financial markets have already priced in current European difficulties. The euro should not weaken further as results should be appraised on a mid-term horizon. We believe that only internal difficulties such as Greek debt coming back in the picture and sovereignty issues can drive the single currency lower. We are maintaining our bullish position on the Euro against the greenback and we target 1.1500 over the next few weeks. The next ECB meeting on the 21st April should not trigger major moves of the EUR as the central bank is already all-in.
EUR/JPY - Bearish Breakout.
The Risk Today
EUR/USD is now consolidating below 1.1400. Hourly resistance can be found at 1.1438 (01/04/2016 high) while hourly support is given at 1.1144 (24/03/2016 low). Stronger support is located a 1.1058 (16/03/2016 low). Expected to show further consolidation. In the longer term, the technical structure favours a bearish bias as long as resistance at 1.1746 ( holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deterioration implies a gradual decline towards the support at 1.0504 (21/03/2003 low).
GBP/USD is still trading without clear direction despite the medium-term technical structure is clearly bearish. Hourly resistance is given at 1.4591 (05/02/2016 high) while hourly support can be found at 1.4171 (01/04/2016 low). A break of stronger resistance at 1.4668 (04/02/2016) is nonetheless needed to show a reverse in the medium-term momentum. The long-term technical pattern is negative and favours a further decline towards key support at 1.3503 (23/01/2009 low), as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.
USD/JPY's medium term momentum is negative. The pair has exited ranged in which it was installed over the last two months. On the short-term, selling pressures keep increasing. Hourly support at 110.67 (17/03/2016 low) has been broken. Hourly resistance is given at 113.80 (29/03/2016 high) while stronger resistance is given at 114.91 (16/02/2016 high). Expected to further weaken. We favour a long-term bearish bias. Support at 105.23 (15/10/2014 low) is on target. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems now less likely. Another key support can be found at 105.23 (15/10/2014 low).
USD/CHF has weakened over the last month which confirms increasing selling pressures. Yet, the pair is pausing. Hourly support can be found at 0.9556 (01/04/2016 low) while hourly resistance is located at 0.9788 (25/03/2016 high). Stronger resistance can be found at 0.9913 (16/03/2016 high). Expected to show further weakness. In the long-term, the pair is setting highs since mid-2015. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours a long term bullish bias.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.