• RBA: Weaker AUD is expected to lead to stronger export growth The Reserve Bank of Australia released the minutes from its latest policy meeting. At that meeting, the Bank kept its Cash Rate (CR) unchanged at 2% as expected. The key point, however, was that it removed from its statement the line that “further depreciation (of AUD) seems both likely and necessary,” and instead said “the Australian dollar is adjusting to the significant declines in key commodity prices.” The tone of the August minutes seemed more upbeat than had been the case in the previous minutes. The members noted that the recent depreciation in AUD would place further upward pressure on the final prices of tradable items over the next few years, which had led to a slight upward revision to the inflation forecast. In addition, they said that further depreciation of the Aussie was expected to transit stimulus to the economy through stronger net exports. Following China’s devaluation of the yuan, however, the minutes of the meeting could be outdated, in our view. Therefore, we would prefer to see the stance of RBA members in their next policy meeting, to see whether they still prefer to hold a neutral bias as far as the interest rates are concerned. AUD/USD jumped a bit on the news but stayed below 0.7400. We still believe that in the long run AUD may head lower (see technical below).
• New Zealand whole milk powder futures point to first gain since February New Zealand whole milk powder futures are pointing to the first gain in auction prices later in the day. Fonterra (ASX:FSF), the world’s biggest dairy exporter, said that it will offer a third less whole milk powder over the next auctions, in an attempt to drive prices higher. NZD/USD was slightly stronger ahead of today’s auction, amid expectations that milk prices may gain again. The pair remained below the resistance of 0.6600. A break of that hurdle is needed to push the rate higher, at least in the near term, perhaps towards 0.6630.
• As for today’s events: During the European trading session, the highlight will be the UK CPI data for July. The expectations are for the annual inflation rate to remain unchanged at 0%, while the monthly rate is forecast to have fallen 0.3% mom. At the recent Inflation Report, the MPC members seemed concerned between an increase in domestic price pressures as wages rise and a fall in import prices as commodity prices fall, and the pound strengthens. The Bank expects inflation to pick up a bit more slowly because of the second slump in global oil prices recently, and therefore, a negative annual figure cannot be ruled out. In such case, GBP could weaken a bit, at least temporarily.
• In the US, we get the housing starts and building permits for July. Housing starts are forecast to increase a bit, while building permits, the more forward-looking of the two indicators, are forecast to moderate somewhat. Nevertheless, the overall strength in the housing sector could keep confidence up and USD supported.
The Market
EUR/USD breaks below the 1.1080 barrier
• EUR/USD traded lower on Monday after hitting resistance near the 1.1120 (R2) line. Then, the rate broke the 1.1080 (R1) barrier, and during the early European morning it is trading fractionally below it. The break below 1.1080 (R1) signaled the completion of a failure swing top formation in my view, and could open the way for a test at the 1.1020 (S1) support level. The RSI fell below its 50 line, but turned up again, while the MACD stands below its trigger line, points down and is headed towards its zero line. These signs support somewhat that EUR/USD could trade lower for a while, but the fact that the RSI turned up again raises some concerns that a minor bounce is possible before the bears shoot again. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside.
• Support: 1.1020 (S1), 1.0975 (S2), 1.0935 (S3)
• Resistance: 1.1080 (R1), 1.1120 (R2), 1.1160 (R3)
GBP/JPY trades in a sideways mode
• GBP/JPY edged lower on Monday after it found once again resistance near the psychological zone of 195.00 (R1). However, the decline was halted near the 193.65 (S1) barrier and subsequently the rate rebounded somewhat. The pair has been oscillating between these two obstacles since the 10th of August; therefore, I would consider the short-term picture to be flat for now. The RSI dipped below its 50 line, but turned up again, while the MACD fell below both its zero and signal lines. The mixed signals provided by our momentum indicators corroborate my stance to take the sidelines at the moment. On the daily chart, I see that on the 8th of July, the rate rebounded from the 185.00 psychological zone, which stands pretty close to the 50% retracement level of the 14th of April – 24th of June rally. As a result, I would consider the overall path of this pair to be to the upside. If the bears appear strong enough to overcome the 195.00 (R1) zone in the future, I would expect them to initially target the 195.80 hurdle, defined by the peaks of the 18th and 24th of June.
• Support: 193.65 (S1), 193.00 (S2), 192.15 (S3)
• Resistance: 195.00 (R1), 195.80 (R2), 197.00 (R3)
AUD/USD remains below 0.7400 after the RBA minutes
• AUD/USD traded slightly higher during the Asian morning Tuesday, after the minutes from the latest RBA meeting revealed that the economy is adjusting to a weaker currency, rebalancing away from a boom in the mining sector. However, the advance was minimal and stayed limited below the 0.7400 (R1) resistance barrier. On the 4-hour chart, the price structure still suggests a sideways short-term path, and therefore I would consider the near-term picture to stay neutral for now. However, taking a look at our short-term oscillators, I see signs that the forthcoming wave could be negative, perhaps for another test at the 0.7320 (S1) support line. The RSI lies near its 50 line and could fall below it soon, while the MACD, although positive, has topped and fallen below its trigger line. A clear dip below 0.7320 (S1) could extend the bearish wave and perhaps see scope for extensions towards 0.7250 (S2). On the daily chart, the completion of a head and shoulders formation and the move below the psychological zone of 0.7500 signaled the continuation of the prevailing long-term downtrend, in my opinion. Nevertheless, I still believe that it would be better to wait for a break below 0.7215 (S3), defined by the low of the 12th of August, before trusting again the longer-term down path. Such a move would confirm a forthcoming lower low on the daily chart and perhaps open the way for the psychological zone of 0.7000.
• Support: 0.7320 (S1), 0.7250 (S2), 0.7215 (S3)
• Resistance: 0.7400 (R1), 0.7435 (R2), 0.7500 (R3)
Gold trades in a quiet mode
• Gold traded in a quiet mode on Monday, staying between the support of 1112 (S1) and the resistance of 1120 (R1). I still believe that since the rate has broken above the upper bound of the sideways range it’s been trading from the 21st of July until the 11th of August, the short-term outlook is positive. Nevertheless, I would like to see a clear move above 1127 (R2) before I get more confident on the upside. Something like that could open the way for our next resistance at 1145 (R3). Taking a look at our short-term oscillators, I see signs that another pullback could be in the works before the next positive leg. The RSI, although above 50, hit resistance at its prior upside support line and turned somewhat down, while the MACD, although positive, still stands below its trigger and points down. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside in my view. As a result, I would treat the short-term uptrend as a corrective move of the longer-term downtrend.
• Support: 1112 (S1), 1105 (S2), 1095 (S3)
• Resistance: 1120 (R1), 1127 (R2), 1145 (R3)
DAX futures rebounds from 10815
• DAX futures traded lower yesterday, but hit support at 10815 (S2) and rebounded to trade back above 10900 (S1). The price structure on the 4-hour chart still suggests a short-term downtrend. However, bearing in mind our momentum indicators, I would expect the rebound to continue. Perhaps for another test at the 11115 (R1) resistance hurdle. The RSI rebounded from near its 30 line, while the MACD has bottomed and looks ready to cross above its trigger line. What is more, there is positive divergence between both these indicators and the price action. As for the broader trend, I will maintain my flat stance. I prefer to see a clear close above 11800 before I assume the continuation of the prevailing major upside path, while a break below 10670 (S3) is the move that could bring a bearish trend reversal, in my view.
• Support: 10900 (S1), 10815 (S2), 10670 (S3)
• Resistance: 11115 (R1) 11200 (R2), 11280 (R3)
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
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