IronFX Daily Commentary 03/03/15

03.03.2015, 9am

RBA keeps interest rates unchanged The Reserve Bank of Australia surprised the markets and left the official interest rate on hold at 2.25%, despite expectations of a back-to-back rate cut to battle easing inflation and disappointing Q4 private capital expenditure. In the statement following the meeting, Governor Glenn Stevens reiterated that AUD remains above most estimates of its fundamental value, given the significant declines in key commodity prices. A key point of concern for the RBA remains the strong growth of lending in the housing market, which is likely the main reason the Bank left rates steady. Nonetheless, Stevens did say that “further easing of policy may be appropriate over the period ahead,” so the door to further rate cuts is not shut by any means.

Given that the financial markets had priced in the probability of a rate cut, AUD/USD firmed up nearly 0.90% following the decision to touch our resistance line of 0.7840. During the early European hours, the rate remained near that level and a clear break of that hurdle is needed for further extensions, perhaps towards our next resistance zone of 0.7900. However, having in mind that the RBA may ease further over the period ahead, we maintain our medium-term view that the pair is likely to challenge the 0.7500 territory in the future. China is likely to settle this week on a lower growth target for the year as it continues to focus on restructuring the economy. With China alone taking 35% of Australia’s exports, the impact of this change is likely to continue to reverberate throughout the Australian economy during the year and further depress the nation’s terms of trade, leading to a lower AUD.

As for the data, Australia’s current account deficit narrowed a bit in Q4, while building approvals jumped unexpectedly in January, a turnaround from the previous month. The data however had a limited impact on the currency as the focus of investors was on the rate decision.

Japanese wages rise Japan’s regular base pay rose 0.8% yoy in January, the biggest gain since 2000. Total cash earnings were up 1.3% yoy, the 11th straight increase. Good, no? No! After inflation, wages fell 1.5% yoy. This shows that while the Abe administration is making some progress in getting companies to boost wages, it’s nowhere near enough to offset the “success” of their drive to boost inflation. With domestic household purchasing power falling, companies are becoming even more dependent on exports. That’s likely to mean the administration depends even more on a weak yen policy going forward.

US economic data on Thursday showed that personal spending fell 0.2% mom in January after falling 0.3% the previous month, below market expectations of -0.1% mom. This was the first two consecutive months of decline since early 2009. It seems that despite lower energy prices and steady hiring, consumers preferred to increase their savings instead of boosting their spending. Personal income rose 0.3% mom, the same as in December, driving the savings rate up to 5.5% from 5%.

At the same time, the US PCE deflator slowed to +0.2% yoy from +0.7% yoy, but the core PCE deflator rose 1.3% yoy, the same pace as in December. This was in line with the CPI data released last week, and provides further evidence that low energy prices are indeed the main reason behind the slowdown in headline inflation, as Fed Chair Yellen argued in her semi-annual testimony. The ISM manufacturing index declined in February, suggesting a slowdown in the manufacturing sector. Despite the 4th consecutive decline, the index was more or less in line with expectations and still stood above the 50 level threshold. Net net, the mixed data kept USD mixed against its major counterparts, compared to US stocks that finished higher with Nasdaq breaking above the key psychological level of 5000 for the first time since March 2000.

Today’s highlights: German retail sales for January were much stronger than expected, rising 5.3% yoy, up from 4.0% yoy in December, contrary to expectations of a deceleration. Even though this indicator is usually not a major market mover, the euro strengthened slightly on the news.

In the UK, we get the construction PMI for January. As with the manufacturing PMI released on Monday, a positive surprise could keep GBP supported.

From Canada, the monthly GDP for December is expected to rebound from the previous month’s decline. Nonetheless, the forecast for December is not enough to cause GDP for Q4 as a whole to accelerate. Ahead of the Bank of Canada policy meeting on Wednesday, a weak GDP growth rate could put further selling pressure on CAD.

As for the speakers, Riksbank Governor Stefan Ingves and BoE Governor Mark Carney speak.


EUR/USD trades virtually unchanged

EUR/USD rebounded on Monday, hit resistance slightly below the 1.1260 (R1) barrier and slid back down to trade again near the 1.1180 (S1) area. I still believe that we are likely to see sellers challenging the low of the 26th of January, at 1.1100 (S2), in the near future. However, there is still positive divergence between the RSI and the price action, while the MACD has bottomed and poked its nose above its trigger line. These momentum signs make me cautious that another bounce could be looming before the bears prevail again. With regards to the broader trend, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A break below the 1.1100 (S2) line in the future could challenge our next support at 1.1025 (S3), defined by the high of the 1st of September 2003.

• Support: 1.1180 (S1), 1.1100 (S2), 1.1025 (S3).

• Resistance: 1.1260 (R1), 1.1390 (R2), 1.1450 (R3).


NZD/USD rebounds from 0.7500

NZD/USD hit support at the psychological figure of 0.7500 (S1) and rebounded somewhat. Nevertheless, taking into account that there is negative divergence between both our short-term oscillators and the price action, and that on the 26th of February the rate failed to overcome the 0.7625 (R2) barrier, I would expect the rebound to be short-lived and limited below the 0.7575 (R1) resistance hurdle. A clear move below the 0.7500 (S1) key line would turn the short-term bias to the downside and perhaps challenge the next support at 0.7450 (S2). In the bigger picture, I still believe that the overall trend is negative. Consequently, I would treat the recovery from 0.7175 as a corrective phase, at least for now.

• Support: 0.7500 (S1), 0.7450 (S2), 0.7340 (S3).

• Resistance: 0.7575 (R1), 0.7625 (R2), 0.7700 (R3).


GBP/JPY fails to overcome 185.00

GBP/JPY hit resistance at the psychological figure of 185.00 (R1) and retreated somewhat. The fact that the rate failed to overcome that key line and print another higher high, combined with the negative divergence between our short-term oscillators and the price action, make me believe that the forthcoming wave is likely to be negative. A clear and decisive dip below 183.50 (S1) would confirm that and perhaps set the stage for extensions towards the next support line at 181.60 (S2). However, on the daily chart, the rate is trading above both the 50- and the 200-day moving averages and this keeps the longer-term picture positive. Therefore, I would treat any possible near-term declines as a corrective move of the larger upside path.

• Support: 183.50 (S1), 181.60 (S2), 180.25 (S3).

• Resistance: 185.00 (R1), 187.25 (R2), 188.40 (R3).


Gold tumbles after finding resistance at 1222

Gold tumbled on Monday, after hitting resistance near the 1222 (R1) obstacle. Nevertheless, the decline was halted near the round figure of 1200 (S1). In my view, yesterday’s fall signaled the downside exit of a possible flag formation, but I would prefer to see a clear close below 1200 (S1) before getting more confident that the metal would extend lower. Such a move could challenge again the support line of 1190 (S2). As for the bigger picture, a break below the 1190 (S2) zone is the move that would confirm a forthcoming lower low on the daily chart and perhaps signal the continuation of the fall from 1307.

• Support: 1200 (S1), 1190 (S2), 1185 (S3).

• Resistance: 1222 (R1), 1235 (R2), 1245 (R3).


WTI rebounds once again from 48.65

WTI rebounded again from the support of 48.65 (S2), but hit resistance at 51.00 (R1), which happens to be the 38.2% retracement level of the 17th - 23rd of February decline, and retreated. Despite the pullback I believe that we are likely to see another positive move, perhaps for another test at the 51.00 (R1) zone. Our momentum studies support the notion. Although both of them point sideways, they both stand within their bullish territories. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, keeping the longer-term downtrend intact. I would treat any possible near-term upside extensions as a corrective move before the bears pull the trigger again.

• Support: 49.50 (S1), 48.65 (S2), 47.80 (S3).

• Resistance: 51.00 (R1) 52.50 (R2), 53.40 (R3) .




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