Overnight, the reserve Bank of Australia shocked the market by failing to cut the 2.25% rate to 2.00%, which a large majority, including this analyst, was expecting. Instead, Governor Stevens and company simply maintained their bias for further easing, but want to see more data before making the cut.
Looking beyond the nearest term, this RBA move doesn’t do anything to alter the negative dynamics for the Australian economy from lower commodity prices, so we’ll be looking for the move to fade in the coming days and for AUD weakness to resume – though perhaps less so in some of the crosses like AUDNZD, where the move lower may largely be done for the cycle. It’s startling to consider that Australia has yet to experience a negative GDP growth rate (year-on-year) since 1991 – but if commodity prices remain this low and Australia’s credit inevitably peaks, we can brace ourselves for a recession.
The weak US employment data from Friday is failing to generate any follow through lower, a notable sign of USD resilience that was also bolstered by yesterday’s in-line ISM non-manufacturing survey coming in above the 55 level. The April data cycle will be interesting as we reach the other side of supposed weather disruptions and on the general idea that one bad month can be written off as an aberration .
The quiet since Friday suggests that the USD still has a strong change of hanging in there as we have yet to close through important USD support levels in everything from EURUSD and USDJPY to GBPUSD and USDCAD.
Looking out for a Bank of Japan meeting tonight, with few expectations in light of regional elections this month, though it is starkly evident that the BoJ’s hoped inflation remains a distant dream, as the inflation has reverted to a deflationary trajectory since the April 2014 VAT tax hike and despite the weaker JPY.
Chart: EURUSD
Ann assessment of the tactical picture in EURUSD suggests that a close clear of 1.1000 and really above 1.1050 would strongly encourages the bulls, while the bears will be looking for the action to slip through the 1.0900 area taken out on the way up after Friday’s payrolls data and the more convincing point of failure would be a move through the 0.618 Fibonacci below 1.0850.
The G-10 rundown
USD: very resilient considering the weakness in Friday’s employment report, but still managing to remain in limbo in several USD pairs. It looks like tomorrow’s FOMC minutes will be the critical USD-related event risk this week, with notable dovish needed to match the market’s very dovish assessment of the Yellen Fed at the moment.
EUR: Sellers seem to be lined up in the 1.1000+ area in EURUSD until proven otherwise as we look for a convincing pivot either way in the EURUSD super-major. Plenty of focus on Greece this week and whether the EU “tail risk” trade is put back on.
JPY: A BoJ meeting up tonight with few expectations coming into the meeting. The JPY continues to trade like a low beta version of the US dollar – an odd state of affairs, but to be accepted until the behaviour changes and USDJPY makes a move, at minimum through 120.50 or down through 118.50.
GBP: Trying to turn the corner again on the EUR after resistance at 0.7385 held last week. Watching today’s Services PMI from the UK.
CHF: Watching the release of Switzerland’s foreign currency reserves data today and whether this can generate fresh interest in CHF selling. If USD reverts back to strength, the USDCHF upside is compelling, as we watch the 0.9500 area and the rapidly rising 200-day moving average now around 0.9450.
AUD: A considerable spike overnight has taken back the oversold levels in many of the AUD crosses, but the lack of real reaction in AUD rates and the fact that the RBA maintains expectations for easing down the road suggests little sustainable upside in AUD.
CAD: USDCAD pushing down hard on the strong oil prices, but if USD stages a rally, the range may yet hold toward 1.2400. CAD traders will focus on Friday’s employment report.
NZD: Notable weakness versus the AUD overnight on the RBA surprise. The plunge in NZDUSD will whet the bears’ appetite for more, especially if we continue lower through 0.7450/00
SEK: A strong Services PMI figure this morning and we have other data out later this morning – watching whether the attempt to break above 9.35 last week in EURSEK has any add-on potential toward 9.45/50. A reversal and close back toward 9.30 looks locally bearish within the range.
NOK: Strong crude rally supports NOK and we saw a bearish candlestick in EURNOK yesterday, though nothing technical looks trustworthy in EURNOK lately as the market lacks conviction. Still possibility of a try towards 9.00 if 8.75 is taken out.
Economic Data Highlights
- Australia Mar. AiG Performance of Services Index out at 50.2 vs. 51.7 in Feb.
- Australia Feb. Retail Sales out at +0.7% MoM vs. +0.4% expected
- Australia RBA leaves Cash Target unchanged at 2.25% vs. widespread expectations of 25 bp cut.
- Sweden Mar. Services PMI out at 57.2 vs. 56.7 in Feb.
Upcoming Economic Data Highlights (all times GMT)
- Sweden Feb. Industrial Production/Orders and Service Production (0730)
- Italy Mar. Markit/ADACI Services PMI (0745)
- France Mar. Final Markit France Services PMI (0750)
- Germany Mar. Final Markit/BME Services PMI (0755)
- Euro Zone Mar. Final Euro Zone Services PMI (0800)
- UK Mar. Markit/CIPS Services PMI (0830)
- US Fed’s Kocherlakota to Speak (1250)
- Japan Feb. BoP Current Account Balance (2350)
- Japan Bank of Japan Policy Statement and Kuroda Press Conference (0300)