Morning Report: RBA On Hold Prompts AUD Bounce

KEY DATA RELEASES TODAY (GMT) :

0930 GBP Construction PMI exp 59.0 v 59.1
1000 GBP BOE Gov Carney Speaks

OVERNIGHT:

USD/JPY manages to close above the psych 120 level last night in spite of somewhat weaker US data (although PCE data came in within expectations). It has been a different story in Asian trading, with reports of domestic banks being better sellers throughout the session presumably for exporter and repatriation interests. The pair’s heavy tone was magnified after comments from Abe’s adviser Honda, talking down the pair and further easing, Honda said the BOJ should not react to lower oil prices weighing on inflation. Recall, Honda made similar comments late last year when USD/JPY was also trading above 120. Market still holds a bullish view in both the medium and short-term, especially going into Friday’s NFP figures, but players seem content to respect the ranges until a break and close above 120.50.

The EUR appears content to pivot around 1.1200 for now as the story for the pair is elsewhere until Thursday’s ECB decision and press conference. The recent intraday 1.1160­1.1240 remains in play for now with little in way of assertive sentiment overall market remains bullish the USD with 1.1280 the key level for the short to medium term bearish EUR view.

GBP’s gains both against the USD and in the crosses after the stronger ­than ­expected manufacturing PMI print were fleeting, indicative of a market turning more neutral the currency after recent gains especially as political risks begin to materialise. Market starting to look for tactical opportunities to turn bearish cable, especially if the recent trend of strong domestic data starts to turn.

RBA held the cash rate unchanged at 2.25% which helped AUD/USD recover to a high of 0.7842. The statement was as expected, however, it also noted in the statement that “further easing of policy may be appropriate over the period ahead”. And, “the board will assess the case at forthcoming meetings.” Thus, the RBA is keeping an easing bias and which likely translates into an eventual easing in April or May. Also released from Australia, building approvals rose 7.9% mom in January vs expectation of -1.8% mom fall. Current account deficit was narrower than expected AUD -9.6b in Q4

Looking ahead, UK construction PMI and Eurozone PPI in European session.

PRICE ACTION OVERVIEW:

EUR: While 1.1270 caps upside targets 1.10/09 above 1.1280 suggest false downside break
GBP: While 1.5480 contains upside reaction, down trend to resume targeting 1.49
JPY: While 118.50 supports expect break of 120.50 and target 2014 highs beyond
CAD: While 1.2350 trendline supports 1.28 next upside objective ahead of key 1.30
AUD: While .7860/80 contains, downtrend to resume targeting .75

KEY TRADES:

ANALYSIS:

EUR/USD Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

• While 1.1280 caps any upside corrections immediate focus is on a retest of year to date lows. A break of 1.1280 suggests return to broader 1.12 -1.15 range.
• Order Flow indicators; OBV tick up form retest of lows, Linear Regression and Psychology bearish
• Shorts in play, please see key trades for details

GBP/USD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bearish

• While 1.5460/80 caps upside there is the potential for downtrend to resume and target year to date lows, 1.5330 next downside objective a break here will inject some momentum to the downside
• Order Flow indicators; OBV consolidates at lows, Linear Regression pierces midpoint from above, Psychology pulling back to test midpoint form above.
• Shorts in play,please see key trades for details

USD/JPY: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish

• Close above 120 bulls now target offers towards 120.50 a break here targets 2014 highs and the 124 level beyond bullish bias remains intact above 118.50
• Order Flow indicators; OBV continues drifting back towards recent highs, Linear Regression supported at midpoint, Psychology bullish but pulling back to test midpoint from above
• Monitoring price action and Order Flow indicators to set longs to target 2014 highs

USD/CAD: Short Term (1-3 Days): Neutral - Medium Term (1-3 Weeks) Bullish

• While 133.50 horizontal support remains intact on a closing basis target 138 and 141 horizontal and vertical trendline resistance beyond. Below 133 targets retest of year to date lows at 130
• Daily Order Flow indicators; OBV rotates above 2014 base, Linear Regression and Psychology bullish but lacking upside momentum, starting to pull back and test midpoints from above
• Monitoring price action and Order Flow indicators to set long positions targeting 1.30

AUD/USD: Short Term (1-3 Days): Neutral - Medium Term (1-3 Weeks) Bearish

• .79 the key upside hurdle to further corrective upside below .77 threatens retest and potential break of lows for early trend resumption targeting .75 next
• Order Flow indicators; OBV consolidating above recent lows, Linear Regression pierces midpoint from above and Psychology bullish but no follow through
• Short in play, please see key trades for details