Fundamental
Overview
The USD came under pressure
since Friday following the softer than expected US CPI report and then the US-China preliminary deal
over the weekend. Overall, the market pricing didn’t change much as it was
already very dovish going into the CPI and the trade talks, but given the
positive risk sentiment, the greenback continues to stay on the backfoot.
The risk-on sentiment is
expected to weigh on the dollar in the short-term, although Treasury yields
could also erase the drop triggered by Trump’s escalation a couple of weeks
ago. This could create some tension between bullish and bearish drivers, but for
now there’s no strong reason for the dollar to rally amid the lack of key US
data.
The Fed tomorrow is widely
expected to cut by 25 bps and announce an end to QT. They will likely keep the
status quo given the lack of US data in terms of forward guidance. For this
reason, the decision is likely to be a non-event considering that we won’t even
get the SEP.
On the AUD side, the
commodity currency jumped at the start of the week as the preliminary US-China deal
over the weekend lifted the risk sentiment. Moreover, the RBA
Governor Bullock yesterday delivered some hawkish comments that sounded
like a rate cut at the upcoming meeting wasn’t certain at all.
The market scaled back the
rate cut probability from 60% to 40%. Tomorrow, we have the Australian
quarterly inflation report and that could still put a rate cut on the table if
the data misses RBA’s forecast of 0.6% rise in the Trimmed Mean Q/Q measure. On
the other hand, Bullock said that a 0.9% would represent a material miss and
therefore take a rate cut off the table completely.
AUDUSD
Technical Analysis – Daily Timeframe
AUDUSD daily
On the daily chart, we can
see that AUDUSD broke above the major downward trendline yesterday opening the
door for a rally into the 0.6627 level next. The buyers piled in on the break
and will now target the 0.6627 level. The sellers, on the other hand, will want
to see the price falling back below the trendline to step back in and position
for a drop into new lows.
AUDUSD Technical
Analysis – 4 hour Timeframe
AUDUSD 4 hour
On the 4 hour chart, we can
see that we have an upward trendline defining the bullish momentum. If we get a
pullback into the trendline, we can expect the buyers to lean on it with a
defined risk below it to position for a rally into the 0.6627 level next. The
sellers, on the other hand, will look for a break lower to increase the bearish
bets into the 0.6440 level.
AUDUSD Technical
Analysis – 1 hour Timeframe
AUDUSD 1 hour
On the 1 hour chart, we can
see that the price bounced on the minor support zone around the 0.6545 level.
If the price were to fall below the support, we can expect the sellers to pile
in for the pullback into the trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the Australian quarterly inflation report and the FOMC policy
decision. On Thursday, we have the Trump-Xi meeting.
