RBA takes the markets by surprise

The Aussie got a boost during today’s Asian session, as RBA took the markets by surprise and proceeded with a 25-basis points rate hike, a scenario that we suggested in yesterday’s report. RBA Governor Lowe, in his statement mentioned that “Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time yet before it is back in the target range” while in his forward guidance stated that “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe”. The forward guidance tends to foreshadow more rate hikes to come, which was an additional element supporting the Aussie during today’s Asian session.

On a technical level AUD/USD jumped during today’s Asian session, breaking the 0.6640 (S1) resistance line, now turned to support. We tend to maintain our bullish outlook as long as the upward trendline incepted since the 31^st of May remains intact. The RSI indicator reached just above the reading of 70 reflecting the strong bullish sentiment yet at the same time may imply that the pair may be reaching overbought levels and may be ripe for a correction lower. Also note that the pair’s ascent peaked as the price action reached the upper Bollinger band, which may create additional difficulties for the bulls to proceed. Should the pair find additional buying orders along its path, we may see AUD/USD breaking the 0.6700 (R1) line and aim for the 0.6770 (R2) level. Should a correction lower take place and develop into a full selling interest of the market for AUD/USD, we may see the pair breaking initially the upward trendline guiding it in a first signal that the upward motion has been interrupted, but also break the 0.6640 (S1) line and aim for the 0.6575 (S2) level.

The USD tended to edge a bit lower yet the overall sideways movement seems to be maintained against its counterparts. On a macroeconomic level our worries for the outlook of the US economy intensified as the ISM non-manufacturing PMI for May dropped almost to the reading of 50, implying a considerable slowdown of the expansion of economic activity for the US services sector, while the manufacturing sector does not seem to fare off much better as the US factory orders growth rate for April slowed down beyond market expectations. If the two are combined, they tend to imply a slowdown in the expansion of the US economy which may weaken the greenback and probably is a result of the tightening of the Fed’s monetary policy.

We recalibrated USD/JPY’s support and resistance levels, in order to better reflect its sideways motion between the 140.80 (R1) resistance line and the 138.70 (S1) support line. We tend to maintain our bias for the sideways motion to continue as the RSI indicator remains near the reading of 50 implying a rather indecisive market. Should the bulls take over we may see the pair breaking the 140.80 (R1) resistance line and aim for the 142.75 (S2) level. Should the bears be in charge we may see USD/JPY breaking the 138.70 (S1) support line and aim for the 136.60 (S2) support level.  

US stock markets, on the other hand, tended to send out mixed signals. We note that Apple’s share price hit a new record high yesterday $184.70, yet seemed to correct lower before the day ended, as it had its biggest product event in years at which it presented its new AR/VR headset, the Apple Vision Pro, which is a positive on the one hand yet it’s also a risk as the market seems to remain unproven for the particular sector currently.

Other highlights for the day:

In today’s European session, we note the release of Germany’s industrial orders for April, Eurozone’s and the UK’s construction PMI figures for May as well as Eurozone’s retail sales for April. Later on, we note the release of Canada’s building permits for April and the API weekly crude oil inventories figure. During tomorrow’s Asian session, we get Australia’s real GDP Rate for Q1, China’s trade data for May and on the monetary front, RBA Governor Lowe is scheduled to speak. 

AUD/USD H4 Chart

Support: 0.6640 (S1), 0.6575 (S2), 0.6525 (S3)

Resistance: 0.6700 (R1), 0.6770 (R2), 0.6820 (R3)

USD/JPY H4 Chart

Support: 138.70 (S1), 136.60 (S2), 134.60 (S3)

Resistance: 140.80 (R1), 142.75 (R2), 145.10 (R3)

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