AUD/USD, ASX 200 Analysis: Soft inflation cements Fed-pause bets

Market summary

• US inflation rose at its slowest pace in 26 months at 4%, or -0.3% m/m to cement bets of a Fed pause (Fed fund futures are now pricing in just of a 8% chance of a hike)
• Lower inflation makes it more likely the US can avoid a recession whilst reducing the need for ‘higher for longer’ interest rates, which helped further lift sentiment on Wall Street
• Gold fell for a third day despite the softer inflation, weighed down by yields as investors witched from bonds to stocks
• EUR/USD initially rose above 1.0800after US CPI but closed back beneath this level, ahead of the FOMC meeting
• GBP/USD was the strongest FX major thanks to another hot wages and employment report, boosting the odds of further BOE hikes
• AUD/USD saw its fourth false break of the 0.63800 resistance zone, which marked it cycle highs when the RAB first paused
• Australian business confidence contracted in May with “notable declines across the trading, profitability, and employment sub-components” according to NAB
• China’s loan growth was below expectations, prompting the PBOC to cut their short-term lending rate for the first time in 10 months
• This boosted sentiment across Asia to help indices trade higher, following a strong lead from Wall Street and also sent WTI back towards $70 on hopes of increased demand
• New Zealand may have entered a recession according to a Bloomberg poll, with economists favouring a second quarter of negative growth in tomorrow’s GDP print

 

 

Events in focus (AEDT):

• 08:45 – NZ current account
• 16:00 – UK GDP, industrial, construction and manufacturing output, trade balance, index of services
• 22:30 – US core PPI
• 04:00 – Fed interest rate decision, staff forecasts, DOT plot (read the FOMC preview)

 

ASX 200 at a glance:

• The ASX 200 appears to have found support around 7100 with its second small bullish day
• It’s expected to open higher thanks to a stronger lead from Wall Street ad SPI futures
• Intraday resistance include 7160, 7185, support is ~7078, 7092-7102

 

AUD/USD daily chart:

AUD/USD has formed a bearish pinbar at a key resistance zone around 68c, which marks the area that the RBA first held interest rates after 10 consecutive hikes. The ideal combination for bearish swing traders is a hawkish hold from the Fed overnight, accompanied with a soft AU employment and negative Z GDP print report tomorrow. The 0.6700 – 0.6710 zone makes viable initial target, although bears may want to faded into retracements within yesterday’s upper wick to increase the potential reward to risk ratio. But we may find that volatility could be on the lower side with the FOMC meeting looming.

 

Asia Data Calendar (AEDT):

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge