Talking Points:
- EUR/USD Defines Near-Term Range as ECB Endorses Improved Outlook.
- AUD/USD Breaks Monthly Opening Range as RBA Tames Bets for Imminent Rate Hike.
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EUR/USD appears to be defining a near-term range following the Federal Open Market Committee (FOMC) meeting, and the pair may largely consolidate over the remainder of the month as the European Central Bank (ECB) endorses an improved outlook for the monetary union.
ECB Vice President Vitor Constancio stuck an improved outlook for the euro-area and stressed that ‘it’s important to underline that growth has converged, meaning that the rates of growth of all countries are now very close together and that’s the best situation from that point of view since the beginning of the monetary union.’ In addition, President Mario Draghi noted that the financial system now poses fewer risks to the real economy while speaking at a European Systemic Risk Board (ESRB) conference in Frankfurt, and the central bank may ultimately alter the monetary policy outlook at the next meeting on October 26 as ‘the economic expansion, which accelerated more than expected in the first half of 2017, continues to be solid and broad-based across countries and sectors.’
In turn, the broader shift in EUR/USD dollar behavior may persist as the Governing Council appears to be moving away from its easing-cycle, but the near-term outlook remains clouded with mixed signals as the Relative Strength Index (RSI) diverges from price.
EUR/USD Daily Chart
- Near-term outlook for EUR/USD remains capped by the 1.2130 (50% retracement) hurdle, but the string of failed attempts to close below the 1.1860 (161.8% expansion) region may continue to foster range-bound conditions.
- Will retain a constructive outlook for EUR/USD as it appears to be stuck in a continuation pattern, but a break below the 1.1770 (100% expansion) region may spur a move back towards the August-low (1.1662), which largely lines up with the 1.1670 (50% retracement) hurdle.
AUD/USD snaps the monthly opening range, with the pair at risk of trading to fresh September lows as the Reserve Bank of Australia (RBA) tames speculation for an imminent rate-hike.
It seems as though the RBA will carry the record-low cash rate into 2018 as Governor Philip Lowe warns ‘a rise in global interest rates has no automatic implications for us here in Australia,’ and the central bank may continue to endorse a wait-and-see approach at the next meeting on October 3 as ‘the slow growth in wages is putting a strain on household budgets and contributing to low rates of inflation.’ In turn, AUD/USD stands at risk of facing a near-term correction especially as the FOMC pledges to further normalize monetary policy over the coming months.
Keep in mind the broader outlook for AUD/USD remains constructive as it clears the 2016-range, but the advance during the summer months appears to have run its course as price and the Relative Strength Index (RSI) threaten the bullish formations from earlier this year.
AUD/USD Daily Chart
Chart - Created Using Trading View
- Series of fails attempts to test the 0.8150 (100% expansion) hurdle brings the downside targets on the radar especially as AUD/USD slips to a fresh monthly-low (0.7918).
- Close below 0.7930 (50% retracement) raises the risk for a move back towards the 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion) region, with the next area of interest coming in around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), the former-resistance zone.
- Keeping a close eye on the Relative Strength Index (RSI) as it struggles to retain the upward trend from May and flashes a bearish trigger.
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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