European Open: Indices mixed, oil and energy lower, RBA hold rates

With no surprises by the RBA and mixed data from Asia, traders looked to weaker oil prices for a lead.
It was a mixed picture for equities across Asia today, with shares in Japan and China trading mostly lower, the ASX 200 essentially flat yet major indices for South Korea , Singapore and Taiwan were higher.

Only consumer staples and therefore the financial sectors closed higher for the ASX 200, with energy, materials and industrials each falling over 1%. Energy stocks were lower as oversupply concerns weighed on oil prices and sent WTI back to $60 before Thursday’s OPEC meeting. Yet volatility was contained overall. Gold resources (GOR.AX) was the weakest stock within the index, falling -7.5% in line with gold prices which touched fresh lows and fell to 1,706.

The Nikkei 225 was struggling following weak CAPEX (capital expenditure) data, which revealed that Japanese companies had cut spending on large equipment for a 3rd consecutive quarter as manufacturer’s continued to chop costs.

Forex: Dollar slightly bid, EUR/USD quietly breaks support
The USD is slightly firmer with the US dollar index (DXY) rising +0.2% to a 3-week high. EUR/USD quietly broke beneath the 1.2023 low in Asian trade but, with the 100-day eMA and 1.2000 handle in close proximity, we are on one’s guard for a false break and corrective bounce higher. USD/CHF closed above its 200-day eMA yesterday and costs have remained during a tight range near yesterday’s highs. subsequent major resistance is around 0.9200, which is around 45 pips away.

GBP/USD printed a 2-week intraday low but prices have since recovered back above 1.3888 support. Failure for bears to overcome this level could end in a minor, technically driven rebound. GBP/AUD nudged its was to a 2-day low following RBA’s meeting and traded back below its 100-day eMA. Last week’s rally appears to possess topped out after finding resistance at its 200-day eMA on Friday.

USD and CHF are currently the strongest major whilst GBP and CAD are the weakest. Although it’s been a quiet session overall with all pairs remaining well within their 10-day ATR’s (average true ranges).

Asian PMI’s still rally
South Korean manufacturing PMI expanded at its fastest rate in 11 years in February, reaching 55.3 and up from 53.2 in January. With new orders and output hitting 11 year high it paints a really rosy picture for global demand and, ultimately, global growth in H2 2021. New export orders also rose for a fifth consecutive month, with respondents highlighting domestic demand and from South Asia.

RBA keep policy unchanged in dovish meeting
The Federal Reserve Bank of Australia predictably held rates at 0.1%, where they expect to carry them until inflation rises comfortably within their 2-3% firing range . The RBA think the economy still operates with considerable spare capacity and “significant gains” for employment are required to satisfy their goals. Moreover, wage growth also will got to be “materially higher”. and that they don’t expect to ascertain this until 2024. Dovish it’s then!

It appears that Monday’s doubled-the-usual bond purchase may are a single-off event, as against a change in momentum as their statement made regard to bond purchases being “brought forward in the week to help with the graceful function of the market”. But they’re going to still answer “market conditions” (translates as ‘higher bond yields’) if and when need be.

The Australian dollar gave little response, although that would be expected since there was no element of surprise at today’s meeting. The ASX 200 spiked 70-points but now trades back near its opening price around 6,785.

USD/CAD focused for Canada’s GDP
With GDP data for Canada released later within the US session and therefore the recent rebound of the US dollar, we are seeking bullish opportunities on USD/CAD.

Recent price action on the weekly charts have made us question whether USD/CAD has already printed a big low. February’s candle produced a Rikshaw Man Doji and last week’s candle produced a “buying tail” (lower wick) after bears did not hold prices beneath the January 2021 and April 2018 low.

Switching to the hourly chart shows that a bullish engulfing candle formed at the 50-hour eMA and costs have now broken above its high to suggest a swing low is in situ . The low has also respected a 38.2% Fibonacci retracement level. Given the strength of the rebound from the 1.2465 low, we suspect recent price action to be corrective and bulls will attempt to target the highs around 1.2746/63.

German retail sales are expected to fall -0.3% in January, although there could also be potential for a downside surprise given lockdowns.

Canada’s GDP is predicted to 7.5% in Q4, a far cry from Q3’s 40.5% rebound but admirable none the less. A downside surprise should help lift USD/CAD in line with our bullish bias, whereas a stronger print could cap upside potential.

Currency pair of the week: AUD/USD

Direction of AUD/USD goes to depend upon comments from central banks regarding the recent spike in yields.
The Federal Reserve Bank of Australia meets in the week and is predicted to go away rates unchanged at all-time lows of 0.10% and reiterate the monetary policy will remain accommodative until CPI is sustainable at their targeted level of 2%-3%. At their February meeting, the RBA said that they expected that point will are available 2024! However, RBA governor Lowe will likely need to address the recent rise in yields and therefore the central banks intervention. Last week, rates within the Australian 10-year bond rose 45bps! As a results of the rise in bond yields, the RBA had to intensify its buying of 3-year bonds. They bought an estimated A$3 billion on Thursday and A$1 billion in Wednesday (and rates still went higher). Today, the RBA announced they were buying A$4 billion of longer-dated bonds, double the standard size! New coronavirus cases have continued to drop by the country, with sporting event capacities increasing to 50% and a few dance clubs reopening. Vaccines distribution is starting. With life in Australia moving back towards normal, is there an opportunity the RBA will need to raise rates before expected? Comments from financial institution in the week are going to be closely monitored.

Federal Reserve Chairman Jerome Powell gave his semi-annual testimony to Congress on Monetary Policy. He noted that current inflation expectations were transitory which the recent rise in yields was unsustainable. He also said that the Fed will keep monetary policy in situ until inflation is above the Fed’s target of 2%-3% for a few time, and until maximum employment is achieved. Yields within the US 10-year Treasury bond rose last week with a disappointing 7-year auction on Thursday. However, they need drifted lower off the highs from near 1.60% to 1.44% as of the time of this writing. Powell is about to talk on Thursday on the US economy at the WSJ Jobs Summit. His comments are going to be closely monitored to ascertain if he addresses the recent rise in yields and if the Fed will adjust monetary policy. The US stimulus package passed within the House of Representatives on Friday evening, and now will head to the Senate. additionally , although concerns are moving to the forefront regarding the coronavirus variants within the US, Johnson and Johnson’s vaccine was approved for emergency use within the US and is now the 3rd vaccine available. consistent with Bloomberg’s vaccine tracker, 75.2 million doses are given within the US, roughly 22% of the population. If things return to normal at a faster pace than the Fed expects, it’s going to put the Fed during a bind as inflation expectations and interest rates will rise, pushing the US Dollar lower!

AUD/USD had been in an orderly trend higher since early November 2020, then paused in January, forming a flag pattern. The pair broke higher on February 9th and was advancing nicely, on its way towards its flag target near 0.8400. However, on Thursday last week a confluence of resistance halted the move. First, the pair reached the phycological round number resistance at 0.8000. It also reached the 161.8% Fibonacci extension from the highs of January 6th to the lows of February 2nd, near 0.7960. Finally, price reached a better high because the RSI made a lower high, in overbought conditions, which could also be a sign of a reversal may be near. As a result, price did reverse, forming a bearish engulfing pattern on the daily timeframe. Price continued lower aggressively lower on Friday as stops were taken out below horizonal support below 0.7820.

On a 240-minute timeframe, AUD/USD is holding the 61.8% Fibonacci retracement and horizontal support near 0.7733. Below there, price can fall back to February 2nd lows near 0.7561. Further horizontal support is near the December 21st, 2020 lows near 0.7459. Short-term horizontal resistance doesn’t cross until near 0.7900, then the highs from Thursday near 0.8010.

Direction of AUD/USD goes to depend upon comments from central banks regarding the recent spike in yields. The RBA meeting and comments for Fed Chairman Powell (and other Fed speakers this week) are going to be closely monitored for clues to any quite adjustment to monetary policy. additionally , if AUD/USD breaks near term support at today’s lows (actual low is 0.7692), price may continue lower.