While the Aussie takes a hit
By Jameel Ahmad, Chief Market Analyst at FXTM
The EURUSD recorded another yearly low yesterday (1.3118) with a combination of tensions in Eastern Europe heightening the possibility of further economic sanctions on Russia, alongside anxiety over EU inflation levels nearing a five-year low weighing on the Euro.
Today, there are a lower quantity of EU economic releases scheduled, therefore which direction the EURUSD fluctuates might be dependent upon how the markets react to the United States ISM Manufacturing data this afternoon.
However, if fears over the low EU inflation levels promote suspicions that the ECB will act again during this Thursday’s interest rate decision, we can expect more bearish momentum. A downside break below 1.3104 would signify the lowest EURUSD valuation since the 6th September 2013, with further support levels located at 1.3092 and 1.3072.
Elsewhere, the AUDUSD declined by around 50 pips overnight following the latest RBA Interest Rate Decision. As expected, the RBA left rates unchanged but the closing monetary statement encouraged bearish movement in the AUDUSD. The RBA expressed that an overvalued currency is hindering the Australian economy’s transition away from mining investment. The Australian economy has been under pressure for quite some time to move away from mining reliance and focus towards domestic consumption.
Tonight represents a major economic event risk for the Aussie, with the latest Australian GDP data announced. As mentioned above, the Australian economy is under pressure to move away from mining investment and increase reliance on domestic sectors.
Onlookers will be paying very close attention towards what progress has been made in regards to this matter. Previously, the Australian GDP for Q1 surpassed expectations but criticism was still encountered after mining contributed towards 0.9% of the 1.1% quarterly growth. The RBA
have been explicit in suggesting since around April that the Australian economy is set to enter a period of weaker economic growth, and tonight’s release may provide validity to those assertions. If the Aussie continues the overnight weakness, further support levels are located at 0.9284,
0.9267 and 0.9251.
In regards to the GBPUSD, the Cable continued its recent appreciation after the surprising emergence that two members of the Monetary Policy Committee (MPC) voted for an interest rate increase last month. The GBPUSD concluded Monday’s trading at 1.6606.
However, it is possible that the recent bullish momentum might be short lived. For example, economic data on Monday showed that the UK Manufacturing sector slowed last month and there are concerns that today’s Construction PMI will follow suit. The consistently impressive UK fundamentals over the past year have been the major factor behind calls for a BoE interest rate hike, although signs of the UK economic performances slowing down should delay those calls. If Tuesday’s Construction PMI falls below expectations and encourages downside moves in the GBPUSD, support can be found at 1.6566 and 1.6543.
After the USDJPY surpassed the psychological 103 resistance level a fortnight ago, the pair has clearly been on a bull run. The pair concluded trading yesterday at 104.340, and has already appreciated as high as 104.833 at the time of writing.
As long as the US economy continues to impress, in collaboration with signs of Japanese economic weakness raising fears that Japan could be heading towards potential stagnation, this bull run should continue. Potential resistance levels are located at 104.918, 105.175 and 105.377. However, if today’s US ISM Manufacturing disappoints or a geo-political factors encourage demand for the JPY, the USDJPY could pullback slightly. In which case, support can be found around 104.750, 104.569 and 104.283.
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