Daily Commentary | 08/02/2019
BoE’s remains dovishly on hold, yet Carney comes to the rescue
BoE as was widely expected, remained on hold at +0.75%, yet sounded quite dovish. The bank expects the GDP growth rate to slowdown reaching +1.2% yoy in 2019 and also expects the CPI rate to temporarily slowdown below +2.00% yoy in the coming months. In the following press conference, BoE governor Mark Carney, highlighted the upside potentials for the UK economy should there be clarity on a Brexit deal and stated that markets should not start preparing for a scenario of no further rate hikes, providing some support for the GBP. On the Brexit political front early reports show that, the EU seems to reject the idea of time limitation for the Irish backstop, as asked by Theresa May. Such a development if confirmed and final, could strengthen arguments for a hard Brexit and add to the bearish sentiment for the pound. Cable experienced some choppy trading yesterday, as it briefly broke the 1.2960 (R1) resistance line, yet failed to remain above it, practically maintaining a sideways movement. We would like to note that the pair may prove sensitive to any Brexit headlines reeling in, as Theresa May is in Brussels trying to renegotiate Brexit with her EU counterparts. We maintain a bearish outlook for the pair and for our opinion to change we would require the pair’s price action to clearly break the downward trendline incepted since the 31st of January. Should the bears dictate the pair’s direction we could see it aiming for the 1.2830 (S1) support line. On the other hand, should the bulls take over, we could see cable breaking the 1.2960 (R1) resistance line, the prementioned downward trendline and aim for the 1.3070 (R2) resistance level.
RBA cuts growth forecasts and the AUD weakens
AUD weakened substantially as the RBA in its quarterly monetary statement, released early in today’s Asian session, slashed the GDP growth and inflation forecast for the 1st semester of 2019. The bank revised downward its GDP forecast for June 2019, reaching as low as +2.5% yoy, if compared to prior reading of +3.25%yoy, yet sees a slight rebound by the end of the year. The bank also points out that the resilience of household consumption remains a key uncertainty and that China’s indicators suggest a more pronounced slowing in momentum. Analysts point out that such a development could push a potential rate hike even further into the future, with some citing May 2020 as a possible date. We maintain a bearish outlook for the Aussie, yet rising iron ore prices could provide some support. AUD/USD dropped yesterday testing the 0.7065 (S1) support line. We maintain a bearish outlook for the pair, as there do not seem to be any lifting news today, for the Aussie while on the other hand the USD seems to have gotten some slight support in recent past sessions. We would like to note though, that rising iron ore prices could provide some support for the AUD and the pair has reached one of its lowest levels in the past two years. Should the pair continue to be under the selling interest of the market, we could see the pair breaking the 0.7065(S1) support line and aim for the 0.6985 (S2) support level. Should the pair find extensive buying orders along its path, we could see it aiming the 0.7150 (R1) resistance line.
Today’s other economic highlights
In today’s European session, we get Germany’s trade balance figure for December. In the American session, we get Canada’s house start numbers for January as well as Canada’s employment data for January. From the US we get the Baker Hughes oil rig count. As for speakers, please note that San Francisco Mary Daly speaks.
• Support: 0.7065 (S1), 0.6985 (S2), 0.6900 (S3)
•Resistance: 0.7150 (R1), 0.7240 (R2), 0.7330 (R3)
• Support: 1.2830 (S1), 1.2710 (S2), 1.2610 (S3)
•Resistance: 1.2960 (R1), 1.3070 (R2), 1.3175 (R3)