RBA surprises markets – sending rates to historical lows

Despite a UK Bank Holiday, markets were very active yesterday. From Europe, upbeat PMIs from the manufacturing sector, European markets were mixed yesterday as risk aversion spilled over from the Asian session. In the afternoon, US figures triggered a sell-off in the US Dollar, which has continued overnight printing new 2016 lows against the CAD, CHF, EUR, JPY and GBP. The ISM indices came out showing expansion, but most falling short of expectations. US stocks thrived on the news on the outlook for lower rates, but the situation is a tad fragile. Gold briefly visited $1300 for the first time in more than a year and is eyeing the 2015 highs as next resistance. Oil dropped, but it seems that the risk correlation between oil and stocks has lost focus for the moment.

Overnight, the Reserve Bank of Australia surprisingly cut interest rates to record lows at 1.75%, which made Australian equities jump higher (up 2.2%), while the Aussie took a beating. The reason for the surprise cut is to be found in lower inflationary pressure than the RBA is aiming for. AUDUSD is supported by the 50-day SMA at 0.7550, where a break below would open up for a test of the 61.8% Fibo in recent wave at 0.7450-area.

AUDUSD – testing 50-day SMA

20160503 AUDUSD.Daily

This morning, the UK PMI for the Manufacturing sector fell short of market expectations and below 50 for the first time since 2013. This is a big surprise to the market as most recent figures from the sector have showed improvements. UK equities have turned red as well as the Pound is heading lower after printing new 2016 highs against the US Dollar.

UK100 Daily – also testing 50-day SMA

20160503 UK100Daily

Today, we expect it to be a relatively quiet day ahead of key US figures later in the week (with the US Job report on Friday as the main event of the week. We have the Euro zone PPI figures for March, where the monthly figure is expected to come out at 0.1% vs. -0.7% in February and later in the day, markets will be tuning in to the ISM NY Business condition for April.

On the monetary side, BoCs Poloz will address the markets and we could see the CAD on the offer, given that Poloz will most likely address the recent CAD-strength. From the US, FOMC voter and Cleveland Fed President Mester will be hitting the wires, but we don’t expect anything new from her side. However, there might be some interest regarding San Francisco Fed President Williams’ as we are likely to hear new information about where or not he still remains on the hawkish front.

Overall, we stick to the them with USD-weakness and general risk aversion and as mentioned in our update from yesterday, we mentioned that EURUSD on a close above 1.14595 would first test the 1.1530-area and then there would be an opening for a test of 1.1715. This morning, the pair has been rejected a 2nd pivot resistance intraday, but we would stick to a buy-on-dips scenario towards 1.1540-area for the day.

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Posted on May 3, 2016 Posted in Uncategorized
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