RBA Holds Yet Aussie Upside Remains Clouded By Resistance

RBA held rates as expected, yet the easing bias remains despite talk of a ‘gentle turning point’.

Going into today’s meeting, expectations for a cut were low at just 7% according to the RBA Rate Indicator. But then they had cut rates three times over four meetings, and policy changes can take many months before their impact is felt by the broader economy. This may well explain why we have to go all the way into March 2020 before the expectation of a cut is above 50%, so there’s certainly been a change in sentiment in recent weeks. And as they’d discussed ‘keeping rate cuts on hold for a rainy day’ further suggests easing could indeed be on the back burner.

Still, whilst RBA are less dovish than they were, they still don’t appear hawkish. And its also possible the talk of QE may ramp up if data misses the mark over the coming months which could weigh on AUD, even if the prospect of further cuts don’t.

AUD/USD: We can see that RBA’s October cut provided its final drive lower before reversing course. A thaw in trade tensions and Fed cut have helped the Aussie rebound 3.9% from its low, yet prices have paused around a technical juncture. A bearish pinbar and bearish outside day shows traders struggling to push it above the July 10th lows, and of course we also have the upper bounds of the bearish channel and the 200-day eMA to provide further resistance as necessary.

Prices are consolidating within a 50-pip range, although the four-hour trend is bullish.
The bearish trendline and 200-day eMA make bullish setups on the daily timeframe less appealing, from a reward/risk perspective
A break above 0.6950 brings 0.7000 into focus
Whilst DXY holds above 97, AUD/USD has the potential to top out – although we’d want to see a break below 0.6877 before assuming downside

AUD/JPY: Its rally has paused after hitting its highest level since August and, like AUD/USD< trades below its 200-day eMA which can act as a level of resistance and erode away at risk/reward potential.

A bearish engulfing candle marks a potential swing high just below 75.30, and bears could consider a break beneath its low of 74.32 to signal a bearish leg is underway.
However, we’d suggest keeping an eye on indices and bond yields before becoming bearish on AUD/JPY; With US markets at record highs and yields perking up, it could throw a cushion of support under AUD/JPY and raise the prospects of a bullish breakout.
Yet it could also be argued that yesterday’s pinbar reversal (and gap) on the S&P500 leaves potential for some mean reversion, which could help force AUD/JPY lower.

EUR/AUD: The bearish wedge remains in play which targets the lows near 1.5900. With support nearby at 1.6076, there’s potential for a bounce before its next leg lower resume. So bears could either wait for a retracement to fade into, or simply wait for a break beneath 1.6076.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.