AUD/USD: 0.7110EUR/USD: 1.0890Oil was again the major focus on Monday, and in reacting to yesterday’s soft Chinese manufacturing data, it has today fallen by around 6%. Most of the other markets have been rather more positive; with US stocks recovering well from an early US session selloff to close the day with minor gains. The US$ is a bit softer, but generally within its recent ranges after the consumer spending and manufacturing data suggested that the US economy may be slowing somewhat. Today’s focus will be on Australia, where the RBA is due, with expectations that rates will remain on hold but may suggest a bias towards a further easing over the next couple of months. Elsewhere, it will be a bit thin on the ground today, with little to come from the US (Total Vehicle Sales/Fed’s George speech), while from the EU we get to see the German/EU Unemployment and the EU PPI. Later in the day, NZD traders will look towards the Global Dairy Trade Index for inspiration.
AUDUSD: 0.7097
AUDUSD has recovered well from an early dip to a low of 0.7042, ignoring the potential negatives seen in the soft Chinese manufacturing data, the 1.8% selloff in Chinese stocks and the downgrade of BHP, to currently sit at session highs of 0.7110.
The RBA will be the main event on Tuesday although no-one really expects any change in policy. Instead, traders will be looking to the statement to see if there is a more explicit bias towards easing of policy in the months ahead. If that turns out to be the case then expect the downside pressure on the Aud to resume.
Until then, the short term momentum indicators are mixed and some choppy trade near current levels seems likely.
On the downside, the points to watch will be at the 100 HMA at 0.7060 and again at the 0.7040 area which held the Aud up on Monday. A dovish RBA could then see a test of 0.7020 (38.2% of 0.6826/0.7140 + rising trend support + 200 HMA), which should be quite strong support if we see it. Below there, we may be in for a more concerted test of 0.7000, a break of which would then test 0.6983 (50% of 0.6826/0.7140) and even 0.6946 (61.8%), although this seems unlikely.
The current strength in the Aud is rather at odds with the dovish expectations from the RBA meeting, but if we do see further strength then look for a run up towards Friday’s 0.7140 high, which will be a tough nut to crack, (this being both the 55 and 100 DMAs as well as being 23.6% of 0.8162/0.6826), so if we do head higher, do not expect this area to give way easily. Beyond there though would trigger stops and could see the Aud head towards 0.7155 and 0.7180 (both minor), ahead of 0.7200/10 (0.7200; daily cloud base, 0.7208; 76.4% of 0.7327/0.6826).
Wait for the RBA and go with the flow seems to be the plan.
Economic data highlights will include:
RBA Interest Rate Decision/ Statement.
Jim LanglandsFX Charts
