RBA cuts rates 25bp. Markets calm down ahead of speech from Powell.
- Australia central bank cuts rates by 25bp to 1.25% and continues to hint at another cut by years end.
- AUDUSD barely unchanged as Governor Lowe has telegraphed this outlook for over a month.
- S&P futures, US yields and the broader USD bounce ahead of a speech from the Fed’s Powell at 9:45amET.
- August gold and Dec Eurodollar back off recent highs.
- UK Construction PMI for May misses expectations, but GBPUSD holds downside test of 1.2650s.
- USDJPY desperately trying to hold the 108.10s.
- US Factory Orders for April out at 10amET. Traders expecting -0.9% MoM.
- Australia reports its Q1 GDP figures tonight at 9:30pmET. Traders expecting +0.5% QoQ.
Dollar/CAD is leaking a little bit lower this morning after yesterday’s swift move lower saw the market close right at chart support in the 1.3425-40s. The Australian dollar, and its rather upbeat reaction to the expected 25bp cut from the RBA last night, appeared to be driver of overnight price action to some degree. The AUDUSD is now trading back near session highs, which is pressuring USDCAD as NY trading approaches; but gold prices and the December Eurodollar interest rate futures contract are struggling to build upon yesterday’s gains and July crude oil prices have inched back towards Friday’s lows…and so we think USDCAD might find some bids here shortly. The next chart support level is 1.3395-1.3400 in our opinion. China’s Commerce Ministry has just come out with some more conciliatory comments saying that they hope the US can “meet China halfway”. A speech from Fed chairman Jerome Powell, at a Chicago Fed event, will be up next at 9:45amET, titled “Monetary Policy Strategy, Tools, and Communication Practices”. The US will then release its Factory Orders data for the month of April at 10amET, where traders are expecting -0.9% MoM.
JUL CRUDE OIL DAILY
Euro/dollar had a rip roaring session yesterday; rallying higher to the 1.1220s we talked about in very short order and then blasting through this level after August gold prices chugged higher into the 1330s. It appears the funds were liquidating short positions and buying new long positions at the same time, as overall open interest at the CME didn’t change all the much for yesterday's session (-134 contracts). Everything seems to be calming down just a bit as NY trading gets underway today. The S&Ps and US yields are inching higher; gold and Eurodollar interest rate futures buying is abating, and broad USD buying is starting to creep back in. We wouldn’t call this a risk-on move this morning by any stretch, but more position squaring ahead of Powell we think.
AUG GOLD DAILY
Sterling is showing a better chart structure this morning, after yesterday’s gold and interest rate driven rally saw GBPUSD close above chart resistance in the 1.2650s. The market survived a downward test of this level in early European trade despite the UK reporting a weaker than expected Construction PMI for the month of May (48.6 vs 50.5). EURGBP buyers are starting to look a little tired here, after the cross hit a new 5 month high at 0.8900 overnight and then quickly receded. We think GBPUSD could settle into a bit of a range trade here should the 1.2640-50s continue to hold.
The Reserve Bank of Australia cut interest rates by 25bp to 1.25% overnight, which was widely expected by market participants. The press release of the statement was not as dovish as we think the market was expecting though (didn’t hint at future rate cuts), and so we think that’s why AUDUSD initially popped higher in reaction. RBA Governor Philip Lowe touched on this more during his press conference however by saying “economic forecasts had assumed rates at 1% by year-end” and it’s “not unreasonable to expect a lower cash rate from here”. With that, we saw AUDUSD selling come in a little bit. All this being said though, AUDUSD continues to hold up from a technical perspective and we think the market hasn't moved all that much because arguably the RBA has been telegraphing everything we heard today for almost a month. Buyers were found on three solid dips below trend-line chart support in the 0.6960s during overnight trade. Next up are the Australian Q1 GDP figures, which will come out at 9:30pmET tonight. Traders are expecting +0.5% QoQ and +1.8% YoY. It appears fund short covering was evident yesterday, as CME open interest dropped a whopping 4,916 contracts (which is sizable for the Australian contract).
Dollar/yen longs are fighting desperately today to keep the market above chart support in the 108.10s as an attack on the next support level in the 107.70s would prove even more ominous for the market we feel. They’re getting some help from a bounce in the S&P futures and the US 10yr year yield (+4bp to 2.12%). August gold prices have just turned red on the session and we think this is helping a little bit too. All eyes now turn to chairman Powell this morning at 9:45amET to see if he talks about the market’s recent frenzy to price in Fed cuts for later this year. The December Eurodollar interest rate futures contract, while off its highs from yesterday, is still pricing in close to 50bp of easing by the end of 2019.
JUN S&P 500 DAILY
Charts: TWS Workspace
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