AUDUSD Potential Corrective Move
Most in the market expect the Reserve Bank of Australia (RBA) to keep its policy rate on hold at 0.75% coming Tuesday. There are risks of a surprise rate cut, though, despite the lack of monetary policy ammunition, on the back of concerns from COVID-19, a rising unemployment rate and a potentially weak 4Q19 GDP. The country will release 4Q GDP numbers on Wednesday and expectations are for a rise in growth to 2.0%YOY from 1.7%YOY in 3Q19. January’s trade data and retail sales will be released on Thursday and Friday, respectively.
Australia manufacturing dipped deeper into contraction: The AiG Performance of Services Index slid deeper into contraction territory this month at 44.3 (Jan: 45.4), marking its fourth consecutive month of sub-50 reading. This reflects declines in production (-5bps) and new orders (-2pts) to near levels near 40.
FED Chair Powell’s unscheduled statement dented the USD. The broad USD was relatively supported on Friday, until Powell’s statement that the Fed will “use our tools and act as appropriate to support the economy” pushed it another leg lower. The broad USD closed weaker against the JPY and EUR. In particular, the JPY continued to see strong outperformance within the G-10 space on risk dynamics. Cyclicals (AUD, NZD, CAD) continued to underperform across the board
On the data front, US data remained decent. Personal income jumped 0.6% MOM boosted by higher pay in the services sector but personal spending growth moderated to 0.2% MOM. Core PCE price index (Fed’s inflation gauge) rose 1.6% YOY, still below 2%. The University of Michigan Consumer Sentiment Index picked up to 101.0 despite growing worries over the Covid-19 outbreak. China official PMIs plunged to all-time low reflecting impact of the virus and efforts to contain it.
From a technical & trading perspective the AUDUSD had witnessed some strong demand since the Asian open with market risk sentiment buoyed by the potential for significant monetary policy response to continued fall out from Covid-19. As such the AUDUSD could print a key reversal candle today (with the additional benefit of sentiment and momentum divergence highlighted on the chart) which could flip the daily chart bullish as per the near term volume weighted average price, this price action would be further confirmed with a similar pattern highlighted in Fridays Chart of the Day USDCAD . If we see a close through .6600 today then there is the potential for the correction to extend to test the pivotal .6700 level as resistance. However, a failure to extend through the .6600 handle will see the downtrend remain intact opening a move to test pivot cluster support to .6350
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!