Trying to Guess the Fed’s Mood

As expected, yesterday the RBA left its rate unchanged at 1.5% p.a. In its comments, the Reserve Bank noted that the economy continues to improve, but that uncertainties in a number of developing economies persist, which worries the RBA. When the news came out, the volatility of the AUD/USD pair was fairly high. The day did not end too badly for the aussie, and there has not yet been a full-fledged reversal, although technically the pair is approaching the 9-day moving average (0.7950). This enables bulls to try to build up longs, while simultaneously using short stops a little below this value.

The dairy product price index was released in New Zealand. It was 1.6%. The kiwi technically is behaving in a way quite similar to the aussie. It is now testing the 9-day moving average at 0.7460, which makes it possible also to switch to longs and quickly reverse positions in case of a top down breakthrough. Employment data, which come out later at night, at 10:45 pm GMT, may contribute to the breakthrough.

Tomorrow ADP’s unemployment data come out, traditionally a forewarning of Friday’s Non-farm payrolls. Traders naturally want to hear the data, which will serve as a trigger for a Fed rate increase at the next meeting in September. Moreover, in the evening we can hear FOMC member Williams and possibly get a better understanding of what the Fed’s mood will be. Meanwhile, Mike Pence announced that Trump intends to sign the bill imposing new sanctions on Russia. This will obviously put additional pressure on both the ruble and on the Russian stock markets. The MICEX managed to go up yesterday, but the question is for how long. In the short term, the Russian currency’s resistance may be at 60.70 per dollar. Even yesterday’s industrial PMI is no help. An additional factor that might have an adverse impact is Wednesday’s traditional release of data on oil inventories: a reduction in inventories is expected for the week, but not as deep as last week. And OPEC is increasing production of the black gold.

The EUR/GBP was trading sideways on both political and economic uncertainty over the “divorce” agreement. Technically, the situation so far is favoring the bulls, given the formation of a bullish flag on the daily chart with the possibility of a renewed uptrend after its formation is complete.

Nikolay Dudchenko, Olymp Trade

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