As central bank rate decisions begin, the market appears to be well-priced with the RBA mainly following expectations. It will be interesting to see if these current levels of AUDUSD, GBPUSD, and EURUSD remain the same by the end of the week. In my opinion, NFP is the big topic this week, so I am very cautious going into this week and see yesterday's risk-on action as the rebalancing at the end of the month.
Market Brief
Australia's Reserve Bank has announced that it will cease purchases of bonds and has kept its cash rate unchanged at 0.10%. The final bond purchase will take place on February 10th, while the bank will maintain supportive monetary conditions. Yesterday, I said it would be hard for the RBA to surprise the market with Hawkish measures since the market had already factored these in. As it stands, the tone was more dovish than expected as the RBA said it will be patient until inflation sustains at 2%.
Despite oversold conditions in the stochastic indicator, the swing lows of December 2021 and January 2022 diverge in price action. The dovish news from the RBA today had a slight effect on the AUDUSD but we’re still at levels similar to the close yesterday. I will continue to look for reasons to sell the rips until we see a higher swing high and higher swing low on the AUDUSD.
The 115.00 level on USDJPY is a difficult level to break. Some technical analysts are probably thinking that a Head & Shoulders pattern is forming as a result of the current price action. The H&S is not confirmed until a close below the neckline which would be around 112.00-112.50, so there is still some way to go before that happens. The daily 200-period EMA is still rising so there is a chance that gets tested as the stochastic oscillator is pointing to a possible overbought level and divergence with the recent swing highs.
Overnight, Japanese unemployment data showed the rate of unemployment in December was 2.7% on a monthly seasonally adjusted basis. Compared to November, the unemployment rate decreased by 0.1% point, while the ratio of job openings to applicants rose by 0.1 points to 1.16, indicating sustained job availability.
Ahead of the London open, we received news from the Nationwide House Price Index, which showed that house prices in the United Kingdom grew by 11.2% annually. Monthly, the index increased by 0.8%, while the average house price stood at £255,556, up from £254,822 recorded the previous month.
We also learned that according to a report published by the Federal Statistical Office, retail sales stood unchanged in Germany in December compared with the same month last year. The monthly change, however, underperformed, with the index plunging as much as 5.5%, far greater than expected.
The weekly EURGBP chart shows a very slow grinding channel to the downside with the weekly Stochastic oscillator indicating oversold levels. The price action is below the 200-period EMA so I won’t be looking to buy this level of support especially as we have the Bank of England and the ECB reporting this week.
Looking ahead, the US session with the ISM Manufacturing PMI and JOLTS job openings data points will be a focus for traders. In the meantime, there will be a lot of European Final Manufacturing PMI and an unemployment rate data release which may throw up some surprises.
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