AUD/USD, ASX 200 eye a solid close for the week: Asian Open

• US data was mixed overnight, which saw the probability of a June cut by the Fed dip back below 50%, according to Fed fund futures
• Whilst building permits, housing starts and the Philadelphia manufacturing index were lower, the import price index – a gauge of inflation – rose 0.9% m/m compared with 0.2% expected, or 1.1% compared to 0.4% previously
• Wall Street indices came out of the gate with confidence to see all three major indices hit new highs and the Dow Jones tap 40k for the first time on record, yet gains were short lived with the S&P 500, Nasdaq and Dow Jones all closing slightly lower for the day
• The US dollar index recoup some of Wednesday’s heavy losses after finding support around the 104 handle and December trendline
• We essentially saw all FX major retrace against Wednesday’s moves to various degrees, none of which seriously threatens the potential bearishness of the US dollar if incoming economic data continues to soften on aggregate
• USD/JPY closed back above 155 after finding support just below our 154 target, EUR/USD handed back earlier gains after failing to quite reach the 1.09 handle and USD/CHF rebounded strongly after a false break of the 0.9 handle.
• A Reuters poll showed that 53% of economists expect the BOE to cut rate by 25bp in August, 39% estimate June
• This comes ahead of a key inflation report for the UK next week, which could be the decider as to whether the BOE will opt for a June or August cut
• RBA cash rate futures slowly began repricing the potential for an RBA cut this year after the ABS labour market report showed unemployment rose to 4.1% for the second time in four years, and the prior print was upwardly revised to 3.9% from 3.8% previously
• Australia’s 2-year yield extended losses for a second day below 4% and closed at a 17-day low

 

 

Economic events (times in AEST)

• 08:45 – New Zealand PPI
• 11:30 – China retail sales, industrial production, house prices, fixed asset investment, unemployment, NBS press conference
• 14:30 – Japan capacity utilisation
• 18:00 – BOE member Mann speaks
• 19:00 – Eurozone CPI
• 00:00 – US leading index
• 00:15 – Fed Waller speaks
• 02:15 – FOMC Daly speaks

 

 

ASX 200 at a glance:

• Thursday was the best day for the ASX 200 this year, which closed just shy of the 7900 handle and record high
• This sets it on track for a fourth consecutive bullish week, and a market that seems primed to bream to a new record high sooner than later
• 10 of its 11 sectors rose led by real estate and information technology
• Only the energy sector closed lower as it tracked crude oil prices from Wednesday
• However, SPI 200 futures were lower with Wall Street overnight, which points to a small lower gap for the ASX 200 cash index today
• The SPI 200 1-hour chart shows prices are pulling back towards a 38.2% Fibonacci level, but as we saw very strong volumes during the initial break above 7850, the bias is to seek dips towards the 7840/7850 area for a potential long setup
• The RSI (2) is also approaching oversold to hint at a swing low, and the 10-bar EMA sits around the 7841 high for potential support
• I doubt we’ll see it break to new highs this week, but odds favour an eventual break to a new record high in due course

 

 

AUD/USD technical analysis:

The Australian dollar looks set to close the week around its highest levels since early January, unless a surprise catalyst jolts markets, or China’s data performs poorly later today. The daily chart shows an indecision candle formed on Thursday which closed between the Q2 and Q3 prices. With traders betting on Fed cuts and coming around to the idea that the RBA may also have to cut rates, it seems to have killed momentum around the cycle highs. And that means traders may want to stick to intraday timeframes for AUD/USD as we head towards the weekend.

 

The 1-hour chart shows prices retraced back towards 0.6650 in a relatively straight line, although a bullish engulfing candle suggests support around this key level. Prices are now consolidating within the Q2 and Q3 open zone, so I a on guard for another pop higher towards 0.6700 in the earlier stages of today’s Asian session.

 

Unless China data is particularly strong, I question its ability to simply break to a new high today. In which case I am also on guard for another dip lower towards 0.6630

 

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge