RBA’s interest rate decision: to hike or not to hike

The USD was on the retreat on Friday as data showed signs of cooling inflation in the US economy, causing traders to reconsider the Fed’s rate hiking path ahead of the release of the Fed’s June meeting minutes on Wednesday and June’s employment data on Friday. US Stockmarkets benefited from the improved market sentiment as all three major US stock market indexes, namely the Dow Jones, Nasdaq and S&P 500 were on the rise. Remaining in US equities we note that Tesla delivered a record-high number of vehicles for Q2 beating estimates which in turn may support its share price.

Back in the FX market and across the world we note the new warnings of Japan’s finance minister Suzuki on Friday, about a possible market intervention to support the Yen a statement that seems to have provided some temporary support for JPY. As for Japanese equities, Nikkei seems to have reached a new 33-year high in a sign of optimism, while at the same time we note that the Tankan indexes for Q2 were better than expected helping JPY to stabilize somewhat. USD/JPY seems to have hit a ceiling at the 145.10 (R1) resistance line. Given that the pair in its stabilisation has broken the upward trendline guiding it since the 14 of June, signalling that the upward motion was interrupted, we initially switch our bullish outlook in favor of a sideways movement bias. We would also not exclude any renewed bullish tendencies for the pair. Should the bulls actually take over, we may see USD/JPY breaking the 142.10 (R1) resistance line and aim for the 146.80 (R2) resistance level. Should the bears take over, we may see the pair breaking the 142.75 (S1) support line clearly, in search of lower grounds.

Aussie traders are focusing on RBA’s interest rate decision, due out during tomorrow’s Asian session. The bank is expected to remain on hold at 4.10% and currently, AUD OIS imply a probability of 62% for such a scenario to materialize. Yet there seems to be wide uncertainty, as a 25-basis points rate hike is also possible. Should the bank remain on hold as expected we may see AUD slipping while a possible rate hike could take the markets by surprise and asymmetrically support AUD. Considerable attention is also expected to be placed on RBA Governor Lowe’s accompanying statement and a hawkish tone could support AUD. AUD/USD rose and stabilized between the 0.6620 (S1) support line and the 0.6700 (R1) resistance line. Given that the price action has broken the downward trendline guiding the pair since the 16 of June, we switch our bearish outlook in favour of a sideways motion bias initially, given also that the RSI indicator has reached and is running along the reading of 50. Should a buying interest be expressed by the market we may see the pair breaking the 0.6700 (R1) resistance line and aim for the 0.6770 (R2) level. Should the bears take over, we may see the pair breaking the 0.6620 (S1) support line and aim for the 0.6555 (S2) support level.

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In today’s European session, we note the release of Switzerland’s CPI rates for June, Germany’s and the UK final Manufacturing PMI figures for the same month and in the American session the US ISM Manufacturing PMI figure for June.

As for the rest of the week:

After a rather easygoing Tuesday, we note on Wednesday the release of Turkey’s CPI rates for June and the US factory orders for May, while on the monetary front, the Fed is to release the minutes of its June meeting. On Thursday we get Australia’s trade data for May, Germany’s industrial orders for the same month, the US weekly initial jobless claims figure, Canada’s trade data for May and the US ISM non-manufacturing PMI figure for June. Finally, on Friday get Germany’s industrial output for May, UK’s Halifax House prices for June, Sweden’s and Norway’s GDP rates for May and we highlight the US employment data for June as well as Canada’s employment data for the same month.