Market News & Analysis
RBA Discussed Keeping Cuts For A Rainy Day | AUD/EUR, AUD/NZD
Matt Simpson October 15, 2019 8:59 AM
As my colleague Joe Perry mentioned, it could be a busy week for AUD given the slew of data from China alongside AU employment data on Thursday. RBA just released the minutes from their October meeting, although the underlying message remains consistent; expect rates to remain low, they could go lower, and employment and consumption are key metrics. That said, there are signs that they’re thinking about how low rates really should go, having discussed keeping rate cuts in reserve for emergencies, and the risks that low rates would inflate (already overinflated?!) home and asset prices.
The reaction was minimal at best although, on the domestic front, Thursday’s employment report could provide the catalyst for volatility. Whilst employment growth has remains strong, RBA expect it to slow. Given full-time employment is now softening on a year over year basis and unemployment is rising against RBA’s wishes, then a worse than expected employment report on Thursday could bring forward expectations of another RBA cut. And this is before we add Chinese data to the mix.
Still, with so much data on tap, it can also muddy the waters where price action is concerned. Whilst weak data from China and AU is generally a bearish case for the Aussie, that’s quite a few data points we’d need to see miss the mark. Furthermore, if data from China gets too bad, it can inadvertently trigger a risk-on rally as markets assume yet more fiscal policy is on the cards from Beijing (after the initial knee-jerk, bearish reaction). Of course, we’ll have to wait for the data to come in to confirm, but it could also surprise to the upside and support AUD. So for now, here’s a couple of potential setups which may be of interest for bulls, if the data allows.
EUR/AUD: This cross may not provide the nicest of trends on the daily chart, yet when volatility erupts it can provide large swings. In the last week for July, for example, it rallied over 5.5% in 11 sessions in practically a straight line, which could have also provided shallow pullbacks and continuation patterns on lower timeframes. Yet recently prices have been coiling within a potential bearish wedge. As this follows on from a move lower, we’re looking for a break lower as part of a continuation patter.
- The rebound from 1.5900 is coiling and shows potential for a bearish wedge pattern
- Resistance has been found below a 61.8% Fibonacci level, with a double top pattern sitting around 1.6370
- Bears could look for a break below 1.6200 to confirm a breakout from the wedge and target the low around 1.5900
- However, wedge needn’t be perfect and remain within their converging trendlines. It’s also possible we could see another high before the peak is in, so allow for some noise around these levels. Ideally, we want to see clearly that bearish momentum has returned.
AUD/NZD: Prices are trading within a potential corrective channel / flag, although there’s also the risk we could see it recycle lower within the pattern before it’s bullish breakout. In some way this would be preferred, as it could improve potential reward to risk ratio for bulls.
- The daily structure remains bullish above 1.0665 and the 50-day eMA has acted as support. Bulls could look for a break of the channel to signal the next leg higher.
- Initial bullish target is the 1.0840 high, followed by 1.0900.
- Still, if the bearish channel is to deepen, we could use the zone around 1.0620/23 as the next line of defence for bulls; therefor, a break below 1.0620/23 invalidates the bullish bias.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.