Early into Tuesday’s session, the Reserve Bank of Australia slashed its policy rate by 25bp, as was widely expected, putting the effective rate down to 2.5 per cent from a previous 2.75 per cent. The RBA delivered its eighth cut since November 2011, but its comments (or rather the failure to mention that they have room for more rate cuts) have been interpreted as less dovish and leaning more towards a neutral stance.
After opening Tuesday’s session at 0.8929, the AUD/USD currency pair rose by around 60 pips as the news hit the headlines. Investors took profit on an Aussie that has been steadily in decline for these last three months, since year start it has shed more than 14 per cent when seen against the US dollar.
In the former part of this week the EUR/USD has remained fairly range-bound, sticking to price action between 1.3233 – 1.3300. The EUR/USD eases after the event risk posed by last week’s ECB and FOMC rate decisions, and the US’s GDP and Payrolls data went by with no major surprises.
Recent data out of the EZ surprised positively, PMI manufacturing issued last week was better than expected and in growth territory, while the PMI services was revised higher despite still below 50, the level delineating growth and contraction. Both these figures should be taken as a health check of the respective manufacturing and services sector.
On the other hand June retail sales for the region, reported last Monday, was still in contraction but the decline was not as bad as originally expected.
The Fed, in its policy meeting mid last week, left interest rates unchanged and offered no new information, for both the eager hawks and doves alike. Investors are trying to make out the fate of the QE even before the Fed announces it.
Last Friday a disappointing Nonfarm Payrolls report saw the USD weaken against the euro. Actual data showed that the US economy created +162k jobs, down from the previous +195k created in the previous month and disappointing expectations for the creation of 185k jobs for the month of July. This week despite a strong reading for the US’s ISM Non-Manufacturing composite the USD failed to capitalise on the data.
For the current week we are expecting price action to meet resistance to the upside in the region of 1.3357/1.3429, while to the downside support should slow price moves lower at 1.3201/1.3117.
Taking the longer term perspective analysts see the EUR/USD currency pair heading lower towards 1.27 levels by year end and 1.25 by the second half of 2014.
From the UK we had some improving data as well this week, last Monday we saw PMI services rise strongly to above 60 levels and on Tuesday even industrial and manufacturing production were much stronger than expected.
The GBP continued to garner support on the back of better than expected data, and after the last minutes released in July showed that further QE from the BoE (at least for the time being) seems unlikely. When seen against the USD, despite the losses suffered from the GBP since year start, we have seen the cable recover 3.65 per cent from year’s lows at 1.4813 (lows hit July 9). At the time of writing the GBP/USD is currently trading at the price of 1.5354.
EUR/GBP, currently trading at 0.8650 levels, has failed a third attempt to close higher than a key resistance level holding price action horizontally at 0.8750. For the current week we expect resistance in the region of 0.8766/0.8842, while to the downside 0.8618/0.8546 should provide support for price moves lower.
Despite the correction seen throughout July, gold continues its slide, in line with the predominant bearish trend seen throughout the current year. The yellow metal hit year’s lows at $1,180 at the end of June and is currently trading at $1,288.50 as it resumes the downtrend.
Throughout the course of last week we’ve seen price action registering consecutive daily losses and this bearishness continued in the former part of this week as well. For the current week we expect the price for gold to find resistance at $1,337.15/$1,366.45, while moves lower should find support at $1,280.98/$1,254.12.
We’re expecting the price for gold to continue to head lower, and a clear break of June lows may expose $1,050 levels.
Upcoming FX Key events:
Today: ECB monthly report and Swiss unemployment rate.
Tomorrow: UK trade balance and Canadian unemployment rate.
Technical key points:
EUR/USD is bearish, target 1.2800, key reversal point 1.3450. EUR/GBP is neutral.
USD/JPY is bullish, target 105.60, key reversal point 92.50. GBP/USD is bearish, target 1.4670, key reversal point 1.5500. USD/CHF is bullish, target 0.9900, key reversal point 0.9100. AUD/USD is bearish, target 0.8760 key reversal point 0.9520. NZD/USD is neutral.
RTFX Ltd is licensed to conduct investment services business by the MFSA. This information does not constitute advice, should not be relied on as such to enter into a transaction or for any investment decision and is provided for information purposes only.
Rudolf Muscat is a senior trader at RTFX Ltd.