Daily Commentary | 05/02/2019
RBA remains on hold and the Aussie jumps for joy
As was widely expected RBA kept interest rates unchanged at +1.50%, yet sounded less dovish than what the market expected, causing the AUD to jump. The bank recognized the global risks and expects inflation to rise gradually, while at the same expects GDP growth to average 3.0% and employment market to remain strong. Analysts note that the key message from the RBA is clear as the bank has noted the weaker outlook and the steep drops of the housing prices and the Q3 GDP growth was higher than expected. We see the case for the Aussie to be in a bullish mode over the next few days, maintain some reserves for a possibly overoptimistic vies by the bank and expect volatility for the AUD to continue until the end of the week. Despite AUD/USD’s bearish pathway yesterday, RBA’s interest rate decision gave the pair a boost during today’s Asian session, breaking the 0.7230 (S1) resistance line, now turned to support. Given the contents of RBA’s accompanying statement and the forecasts for the US ISM non-manufacturing PMI for January later today we could see the pair rising even further. Should the pair find fresh buying orders along its path, we could see the pair rising and aiming or even breaking the 0.7330 (R1) resistance line. Should the pair come under the selling interest of the market, we could see it breaking the 0.7230 (S1) support line and aim for the 0.7150 (S2) support barrier.
GBP drops as difficulties mount for Theresa May
The pound weakened against the USD yesterday as difficulties regarding Brexit, seem to mount for UK’s PM and another PMI came in lower than expected. UK business secretary Clark, stated that there is damaging uncertainty about the terms of the UK departure from the EU, as Nissan abandoned plans for a new factory in Sunderland. On the political front Theresa May is about to start a two day visit to Northern Ireland to gather support for Brexit plan. UK’s PM has until next week to secure changes that will satisfy conservative hard Brexiteers and the UK parliament. On the other hand the EU seems to be digging in to their positions and recent media reports stating that the bloc might offer legally binding assurance to the UK about the Irish backstop were denied by EU officials. Currently we could see the pound maintaining a bearish momentum as Brexit uncertainty rises and financial releases seem to weaken the pound. As uncertainty about Brexit grows, IronFX plans to hold a live Webinar on the 12th of the month about Brexit. Cable dropped yesterday, breaking the 1.3070 (R1) support line, now turned to resistance. We could see the pair remaining under pressure, yet we expect it to be sensitive to any further Brexit headlines and today’s financial releases. Should the bears continue to dictate the pair’s direction we could see it aiming if not breaking the 1.2960 (S1) support line, while if the bulls take over, we could see cable breaking the 1.3070 (R1) resistance line and aim for higher grounds.
Today’s other economic highlights
In today’s European session, we get Eurozone’s final Composite PMI for January, UK’s services PMI for January and Eurozone’s retail sales growth rate for December. In the American session, we get form the US the ISM non-manufacturing PMI for January and the API weekly crude oil inventories figure.
• Support: 0.7230 (S1), 0.7150 (S2), 0.7065 (S3)
•Resistance: 0.7330 (R1), 0.7425 (R2), 0.7500 (R3)
• Support: 1.2960 (S1), 1.2830 (S2), 1.2710 (S3)
•Resistance: 1.3070 (R1), 1.3175 (R2), 1.3280 (R3)