Aussie looking at RBA for some support

Tomorrow during the Asian session (03:30, GMT) we get RBA’s interest rate decision and the bank is expected to remain on hold at +0.75%. Currently AUD OIS imply a probability of 76.25% for the bank to remain on hold while at the same time the rest seems to be favouring a 25bp rate cut. It should be noted though that the market seems to be pricing in a rate cut at the early 2nd quarter of the year. As unemployment remains at rather low levels and the CPI seems to be picking up a bit, we could see the bank maintaining a wait and see position. On the other-hand the GDP growth rate, along with the uncertainty created by the new Corona virus in China advises caution for the bank. Should the bank remain on hold we could see it maintaining a neutral tone in the accompanying statement possibly reiterating that the Australian economy has reached a gentle turning point, while the risks surrounding the global economy are tilted to the downside. AUD/USD maintained a sideways motion on Friday and during the Asian session today just above the 0.6685 (S1) support line. As the pair broke the downward trendline incepted since the 29th of the January, we switch our bearish outlook for the pair, in favour of a sideways motion for the time being. Should the pair come under the selling interest of the market, we could see it breaking the 0.6685 (S1) support line and aim for the 0.6650 (S2) support level. On the flip side, should the pair’s long positions be favoured by the market, we could see it breaking the 0.6723 (R1) resistance line and aim for higher virus.

Pound rallies as UK leaves the EU

The pound rallied against the USD on Friday in a continuance of BoE’s interest rate decision and as UK’s divorce with the EU was made official at 23:00 GMT. It should be noted that market sentiment seems to be gauging the risks ahead for the pound due to the negotiations with the EU for the post Brexit relationship. The UK seems to be seeking a Canada style trade agreement until the end of the year. Media yesterday stated that UK’s Prime Minister Johnson prepares to state in a speech that he is ready to quit talks with the EU about their future trade relationship, if he does not get what he wants. The main thorns in the negotiations seem to include issues such as the alignment of internal regulations of the EU and the UK, the fisheries sector, cooperation on safety and how a possible deal is to be governed in the future. Should there be further hardening of the stance of the EU and/or the UK we could see the pound weakening. GBP/USD rallied on Friday as it broke the 1.3170 (R1) resistance line, yet during today’s Asian session corrected below it. We could see the pair correcting lower during the day, should the fundamentals of the pair continue to push the pound lower. Should the pair come under the control of the bulls once again, we could see it aiming if not breaking the 1.3170 (R1) resistance line and aim for 1.3340 (R2) resistance level. If the bears take control, we could see the pair breaking the 1.3015 (S1) support line and aim for lower grounds.

Other economic highlights today and early tomorrow

During the European session, we get from Germany the final manufacturing PMI, while in the American session we get the ISM Manufacturing PMI for January.

As for the rest of the week

On Tuesday we get the US factory orders growth rate for December and New Zealand’s employment data for Q4. On Wednesday we get China’s Caixin Services PMI for January and the US non-manufacturing PMI also for January. On Thursday we get from Australia the retail sales growth rate and Germany’s industrial orders growth rate both for December. On Friday, we get China’s trade data for January, Germany’s industrial output growth rate, the US employment report as well as the Canadian employment data for the same month. Calendar follows

AUD/USD 4 Hour chart