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AUSDUSD higher as RBA taper

The Reserve Bank of Australia has kept its bank rate unchanged but has hinted at a growing economy and feels it is appropriate to reduce their weekly bond purchases. The UK is also more bullish as the rhetoric out of Westminster is leaning towards common-sense measures instead of draconian government mandates.

Market Brief

The end of Monday was uneventful though Japanese household spending was upon expectations. Spending rose at a double-digit rate in May as consumers bought cars and mobile phones, but consumer confidence has taken a hit with the recent COVID-19 infections and lockdown measures.

The USDJPY continues to trade within a tight range, with the 20,50 and 200 ema’s pointing to higher prices. The market structure is also bullish with higher swing highs and higher swing lows. The swing low from 30th June would be a key support level and if it were broken the next significant support would be from the 50 ema and then the 200 ema.

This morning the RBA announced that they would keep the cash rate unchanged. It will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range. The Bank's central scenario for the economy is that this condition will not be met before 2024. They have decided to adjust the weekly bond purchases and will conduct a further review of how effective these purchases are in November.

The AUDUSD has returned to the old support now resistance line of 0.7580 and the daily 200 ema. A close above the swing high of 0.7616 would be a significant blow to the bears and a close back inside the old trading range would also be very bullish.

The UK Prime Minister Boris Johnson has said that the lifting of all remaining restrictions to do with the COVID-19 pandemic means all businesses including nightclubs will be allowed to open with no restrictions on capacity. The PM is looking for a strong UK recovery and has warned that the government will have to take steps to protect the public if another variant is discovered if it doesn’t respond to vaccines.

Oil continues to rally post the OPEC+ meeting. The oil-producing nations couldn’t come to a consensus agreement on output, so everything stays the same until they decide to meet again. Without an extra increase in output, there is the chance that the inventories will tighten, and a supply constraint could see the likes of the US shale industry ramping up production or the likes of Russia increasing independently of the OPEC+ agreement.

The falling US dollar index and the rising oil prices have weakened the outlook for the USDCAD. The price action hasn’t broken a swing low yet and the current trading range is within the support of the 20 and 50 daily ema’s.

This morning European traders receive the important ZEW economic sentiment data for the eurozone and Germany.

Currently, the EURUSD is showing strength as the US dollar depreciates and we also have a divergence between the price action lows and the stochastic indicator. There is a lot of resistance to the upside, so I am not expecting anything major today.

In the afternoon the US session opens and then we have the ISM services PMI data. Recently it has been the services sector that has added the most jobs to the employment data, so market analysts will be looking for further confirmation that this part of the economy is still growing.

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