RBA: to hike or not to hike?

The USD remained relatively stable on Friday, yet fresh data showed that inflationary pressures continued to be on the retreat in June a scenario that if combined with the stronger preliminary GDP rate for Q2, enhance market’s expectations that the US economy will be able to avoid a recession. The data provided some support for US stockmarkets as the pressure on the Fed to continue hiking rates seems to have eased further. 

USD/JPY rallied on Friday and during today’s Asian session and broke consecutively the 139.10 (S2) and the 140.80 (S1) resistance lines, both now turned to support. Yet the pair continued higher aiming for the 141.50 (R1) resistance line and we tend to reverse our bearish outlook in favour of a bullish outlook, given also that the RSI indicator is on the rise and has surpassed the reading of 50. Should the pair find fresh buying orders along its path, as expected, we may see USD/JPY breaking the  141.50 (R1) resistance line, which also marks the latest peak of the pair’s price action and start aiming for the 143.35 (R2) resistance level. Should the selling interest be renewed we may see the pair reversing course, breaking the 140.80 (S1) support line and aiming for the 139.10 (S2) support level.      

Aussie traders are expected to focus on RBA’s interest rate decision tomorrow. The bank is expected to remain on hold at 4.10% and AUDOIS imply currently a possibility of 77.82% for such a scenario to materialise, with the rest suggesting that a 25-basis points rate hike is also possible. With inflationary pressures in the Australian economy easing the bank may prefer to keep rates unchanged for the time being and re-evaluate the overall effect of its cumulative tightening., especially given that it’s probably to be RBA Governor Lowe’s last meeting. Should his accompanying letter, including the bank’s forward guidance, also show some doubt for more rate hikes to come we may see the Aussie weakening.    

AUD/USD has halted its wide drop and has stabilised between the 0.6595 (S1) support line and the 0.6700 (R1) resistance line, showing some slight bullish tendencies. For the time being, we maintain a bias for the sideways motion to be maintained for the pair yet note RBA’s interest rate decision as a key event for the pair’s direction. Should the bulls take over, we may see AUD/USD breaking the 0.6700 (R1) resistance line, with the next possible target for the bulls being the 0.6765 (R2) resistance barrier. Should the bears take over, we may see the pair breaking the 0.6595 (S1) support line and aiming for the 0.6545 (S2) support base.   

Other highlights for the day:

Today in the European session, we note the release of UK’s nationwide House prices for July, the Czech Republic’s preliminary GDP rate for Q2, Eurozone’s preliminary HICP rate for July and Eurozone’s preliminary GDP rate for Q2. During Tomorrow’s Asian session, we note the release of New Zealand’s Building Consents for June, Japan’s and Australia’s final manufacturing PMI figures for July, Australia’s building approvals for June and China’s Caixin manufacturing PMI figure for July.

As for the rest of the week  

On Tuesday we note the release  Germany’s Final Manufacturing PMI figure and the US ISM Manufacturing PMI figure both for July. On a quiet Wednesday we note New Zealand’s employment data for Q2. On Thursday, we note Australia’s Trade Balance figure for June, Switzerland’s and Turkey’s CPI rates for July, the US weekly initial jobless claims figure, the US Factory orders rate for June and the US ISM Non-Manufacturing PMI figure for July . Also on Thursday, on the monetary front we note the release of UK’s BoE interest rate decision and from the Czech Republic CNB’s interest rate decision. On Friday we make a start with Germany’s Industrial orders rate for June and highlight the US and Canada’s Employment data both for the month of July.

USD/JPY H4 Chart

Support: 140.80 (S1), 139.10 (S2), 137.45 (S3)

Resistance: 141.50 (R1), 143.35 (R2), 145.10 (R3)

AUD/USD H4 Chart

Support: 0.6595 (S1), 0.6545 (S2), 0.6460 (S3)

Resistance: 0.6700 (R1), 0.6765 (R2), 0.6835 (R3)

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