RBA Leaves Rates on Hold As Expected; Risk Off Trade Carries into Tuesday
- RBA leaves rates on hold at 4.25% as expected
- Accompanying language slightly more downbeat than expected
- China growth forecast downgrade and Greek PSI outcome weighing
- Kiwi is the hardest currency on the day thus far
- Investors looking ahead to RBNZ, BOE, ECB and NFPs
The first big event risk of the week is now out of the way, with the RBA leaving rates on hold at 4.25% as was widely expected. The accompanying central bank statement offered nothing surprising but did show a slightly more downbeat slant than perhaps expected, after citing concerns over global growth and maintaining an easing bias. The Australian Dollar has been sold since the rate decision and the less upbeat tone along with broader risk off themes have been driving the relative weakness. China’s lowered growth forecasts have not helped matters and this already follows some softer local PMI readings.
The New Zealand Dollar however has been the standout underperformer on the day thus far, with the market accelerating to the downside following a break of some key support by 0.8250 in the previous day. Elsewhere, ongoing concerns over the outcome of the Greek PSI talks will likely provide an added layer of uncertainty in the markets and developments on this front should be watched closely. Investors will also continue to look ahead to the risk in the latter half of the week associated with the RBNZ, BOE, and ECB rate decisions, along with US NFPs.
EUR/USD: The latest failure ahead of 1.3500 and subsequent break back below 1.3350 could now warn that a lower top is finally in place ahead of the next major downside extension below the 2012 lows by 1.2620. However, there is some short-term rising trend-line support off of the 2012 lows by 1.3150 which will need to be convincingly broken before we can really get behind the idea of a full on downside acceleration. Inability to establish below 1.3150 will keep bull sin the picture and could still warn of additional corrective gains in 2012. Back above 1.3320 will also compromise bearish outlook.
USD/JPY:The market is doing a good job of showing the potential for the formation of a major cyclical bottom after taking out the 200-Day SMA and now clearing psychological barriers by 80.00 for the first time in 6 months. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming months. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond the recent highs at 81.85 over the coming sessions could prove hard to come by with technical studies needing to unwind from their most overbought levels in over 10 years before a bullish continuation. As such, we would caution buying breaks above 81.70 for the time being and instead recommend looking for opportunities to buy on dips into the 78.00-80.00 area.
GBP/USD: Inability to establish above the 200-day SMA once again keeps the multi-day range intact, and from here we would look for a bearish resumption back down towards the 1.5650 area over the coming sessions. Look for a sustained break below 1.5800 to confirm outlook, while only a daily close back above 1.5950 gives reason for concern.
USD/CHF: Setbacks have stalled for now just ahead of 0.8900 and the market could finally be looking to carve the next medium-term higher low ahead of a bullish resumption and eventual break back above 0.9660. Look for additional gains over the coming sessions back towards 0.9300, with a break above to confirm and accelerate. Ultimately, only a drop below 0.8930 negates and gives reason for pause.
--- Written by Joel Kruger, Technical Currency Strategist
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