Reserve Bank of Australia delivers less dovish than expected hold on interest rates

Summary

• USDCAD: Dollar/CAD is stuck between support at 1.3100 and resistance at 1.3130 this morning as the broader USD trades quietly.  Oil prices have been a little jumpy in overnight action, but are now trading back below support in the 54.40s (which is a mild USDCAD positive).  Traders now await the Canadian Trade Balance figures for December (out at 8:30amET) and the US Non-Manufacturing ISM (out at 10amET).  With crude oil prices continuing to slip lower here as we write (-1%), we think USDCAD could take another shot at the upside today.  A break of chart resistance in the 1.3130s would open up an air pocket of resistance until the 1.3180s.

• EURUSD: Euro/dollar leaked lower in quiet overnight trade; continuing yesterday’s short-term downtrend following Friday’s upbeat US ISM report.  Chart support in the 1.1420s gave way, which was a bit troublesome for the technical outlook, but some decent Services PMI prints out of France, Germany and the Eurozone this morning appears to be helping the market recover a bit.  Some headlines have just crossed from Reuters (see below), which is now putting upside pressure on the 1.1420s because Italian bonds are rallying (TLTROs benefit the Italian bond market).

   

  SOME ECB POLICYMAKERS HESITANT TO CHANGE INTEREST RATE GUIDANCE AS IT WOULD IMPACT TERM OF NEXT ECB PRESIDENT - ECB SOURCES

   

  ECB HAS TIME TO CHANGE RATE GUIDANCE, TLTRO SEEN AS PRIORITY -SOURCES

   

  We think the 1.1420s will very much be today’s pivot for price action.  Stay below and we’ll likely see continued weakness into the 1.1390-1.1400 level, but trade above and the market has scope to rebound to Friday’s highs in the 1.1470s.

• GBPUSD: Sterling is slumping further this morning after the UK Services PMI, unlike the other pan-European Services PMIs out today, missed expectations by a wide margin.  This news inviting more selling into the market after a miserable NY close yesterday which saw prices fall below chart support in the 1.3050s.  Some buyers appear to be making a stand here though at support in the 1.2990-1.3000 zone, and if we combine this with EURGBP facing thick chart resistance in the 0.8780-0.8790 today, we think GBPUSD has a shot at bouncing today.  The UK press is reporting that Theresa May will be travelling to Brussels on Thursday to meet European Commission President, Jean-Claude Juncker.

• AUDUSD: The Aussie is outperforming the majors this morning after the Reserve Bank of Australia (RBA) delivered a less dovish than expected hold to interest rates last night.  The trading community thought the RBA, in light of the recent spate of weak economic data, would start sounding some alarm bells about the Australian economy, but they instead struck a very balanced tone as usual and more importantly kept their final paragraph unchanged from the December press release.  More here.  While this news has lifted the Aussie today, we wouldn’t get too excited just yet as AUDUSD has simply recouped the losses since Friday.  Trend-line resistance in the 0.7260-70s is still capping prices and we have broad USD demand noted across the majors that hasn’t meaningfully reversed course yet today.  The RBA governor Lowe delivers a speech tonight at 8:30pmET.

• USDJPY: Dollar/yen has stalled ever since hitting trend-line resistance in the 110.10s yesterday.  US equity futures and bond yields continue to inch higher though so far today, and so we think USDJPY has a chance to resume higher here.  Chart resistance does get chunky however as we approach the 110.30-50 level, and so we think it might be a tough slug from here.

Tune in @EBCTradeDesk for more real-time market coverage.

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About the Author

Erik Bregar - Director, FX Trading

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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