RBA shift tone
As expected the RBA August Board meeting retained the cash rate at a record low of 2.00%. The central bank continue to see the current accommodative policy as “appropriate.” The policy outlook was generally balanced as, “further information on economic and financial conditions to be received over the period ahead will inform the Board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
Yet the accompanying statement took a hawkish turn when members stated that AUD was adjusting to declines in commodity prices, sheading the language for more depreciations. In reference to the currency the statement said it was "the Australian dollar is adjusting to the significant declines in key commodity prices." This change in commentary indicates that the RBA has greater comfort in the current level of the AUD. The newly developing confidence in AUD pricing suggests that less verbal intervention or easing bias geared toward weakening the AUD will be required (baring no negative change in fundmentals). Local AUD yields jumped 3bps on the statement. Heavily sold AUD/USD quickly ran to 91.39 from 90.10 as shorts were squeezed. On the data front, Australian retail sales hastened 0.7% m/m in June, above estimates of 0.4% m/m and revised higher 0.4% m/m read in May. Finally, Australia’s trade deficit came in at A$2933mn in June slightly below expectations of deficit of A$3000mn. We will be watching developments in China carefully but favor carry based trades in AUD/JPY and AUD/CHF. The positive AU economic data specifically strong housing data combined with today’s slightly neutral statement (shift from dovish) indicates that it’s unlikely that the RBA will cut rates further. However, the SNB and BoJ are not tightening anytime soon.
Russia‘s inflation eyed:
“Today will be released the Consumer Price Index for Russia. This data represents a major concern for the Central Bank of Russia as it has prevented a larger downside change for the key rate last week. Indeed and as we expected, it has moved to 11% from 11.50% amid negative growth that printed at -2.2% year-on-year for the first quarter. Furthermore, the ruble is trading very low and as we are still thinking, a monetary policy must absolutely be cautious as there is a massive downside risk for the ruble coupled with a major inflation risk.
Traders will carefully watch the today’s CPI release, which is often interpreted as a monetary policy outcome. However, any key rate move takes at least a few months before being truly reflected in the economy. As a result, what really matters is the trend. Estimates for today’s data are about at 0.9% m/m while June figure printed at 0.2% m/m.
In its last week meeting, the CBR reiterated its inflation forecast for June 2016. The CPI is targeted to reach 7% before going lower to 4% in 2017. We think that those forecasts seem too optimistic as long as there is no sustainable growth trend. For the time being, easing rates has only supported high inflation. Nonetheless, we remain confident as there is still room for the CBR to act.
The USD/RUB is set to increase again as long as the data are not fully supporting a pick-up in growth. We target a pair above 64 ruble within the next few weeks.”
EUR/USD is consolidating and is also still holding below 1.1000. Hourly resistance lies at 1.1278 (29/06/2015 high). Stronger resistance lies at 1.1436 (18/06/2015 high). Support can be found at 1.0660 (21/04/2015 low). Over the last month, the pair is setting lower highs therefore we remain bearish over the medium-term. In the longer term, the symmetrical triangle from 2010-2014 favors further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). Break to the upside would suggest a test of resistance at 1.1534 (03/02/2015 reaction high).
GBP/USD is still moving in either direction. Hourly resistance is given at 1.5803 (24/06/2015 high). Support is given at the 38.2% Fibonacci retracement at 1.5409. Stronger support is given at 1.5330 (08/07/2015 low). We expect the pair to decrease again within the next few days. In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).
USD/JPY has decreased. Hourly resistance can be found at 125.86 (05/06/2015 high). Stronger resistance still lies at 135.15 (14-year high). Hourly support is given by the 38.2% Fibonacci retracement at 122.04. Stronger support is given at 120.41 (08/07/2015 low). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).
USD/CHF is still in a short-term upside momentum. It is now challenging to break resistance at 0.9719 (23/04/2015 high). We think that the pair will likely test Again this resistance. Hourly support can be found at 0.9151 (18/06/2015 low). In the long-term, there is no sign to suggest the end of the current downtrend. After failure to break above 0.9448 and reinstate bullish trend. As a result, the current weakness is seen as a counter-trend move. Key support can be found 0.8986 (30/01/2015 low).
Resistance and Support:
EUR/USD1.14361.12781.11961.09421.08191.06601.0521
GBP/USD1.59301.58031.57091.54901.53301.51711.5089
USD/CHF1.01290.98630.97190.96150.92440.91510.9072
USD/JPY135.15125.86124.45123.97120.41118.89116.66