Daily Market Analysis: 06 December 2016
by Christala Parmaxi, CFTe
Reserve Bank of Australia Policy Meeting
After two rate cuts in 2016, RBA held the key interest rates unchanged at the current record low level of 1.5%, as announced during December’s policy meeting, in line with the expectations. With the commodity prices increase and the positive economic data coming out for the country over the past month, the policy makers were positive for the overall economic outlook. They also stated that the previous cuts on the cash rates will provide additional support to the demand and enhance the actual inflation to reach the target, which is actually the only economic indicator that keeps the policymakers cautious, along with the housing data. The Aussie barely reacted on the news since the hold of the rates was already reflected in the market price. The current medium-trend overview of the AUDUSD is negative; however it’s been running on a short term correction to the upside since the beginning of the month, after Dollar’s “November to remember”. The Aussie recorded the biggest positive change against the Japanese Yen yesterday, advanced against the rest of the commodities and currencies, including the US Dollar, as the latter fell in Euro’s and Pound’s upside rally.
Although there’s more supportive data coming out for the US Economy, it does not affect greenback’s direction anymore as it already discounted all the new information and is now waiting for a significant event to attract investors’ attention. November’s ISM Non-Manufacturing PMI was revealed 1.8 units higher than expected, reaching 1-year high. The world’s most traded currency is still correcting from the sharp uptrend; it closed Monday lower against almost all of its counterparties, remained unchanged against the Canadian Dollar and advanced against the preferable Safe Haven of the traders – the Japanese Yen.
Today we are looking for the Canadian Ivey PMI Index at 15:00 GMT which is expected slightly higher than the last month while during tomorrow’s Asian session the Australian GDP for Q3 is expected at 0.3%, 20 point lower than the previous Quarter. This may be a good point for the end of the uptrend correction of the Aussie and the continuation of the prevailing uptrend. Moreover, during tomorrow’s European session the UK Manufacturing Production is going to be published and it is expected at 0.2%, 40 points lower than October’s figure.
The pair found resistance on 1.08 and it is moving within a trading range between 1.073 and 1.08, which is possible to last until the ECB meeting on Thursday. ADX indicates no clear direction while the RSI and MACD are on bullish levels indicating positive momentum. The lower band of the rectangle at 1.073 could be a good entry point for the bulls, targeting the higher band of the rectangle.
After a day of unsuccessful attempts, the Cable broke the resistance of 1.274 during the early Asian session today and it is moving higher targeting the level of 1.279. ADX indicates overextended positive directions while the RSI is near its overbought level and MACD is on bullish levels trying to cross its signal to the upside. We are looking for further upside momentum of Cable, at least the next announcement tomorrow during the European session.
On the 4-hour chart, the Aussie is clearly running on a correction of the main downtrend while it is finding resistance for the second time on the critical level of Fibonacci 38.2%. The momentum indicators are near their equilibrium levels indicating indecision and confirming the trendless phase, while ADX indicates no clear direction of the trend. A downwards penetration of Fibo 23.6% level at 0.742 would indicate the return of the downtrend while an upwards penetration of Fibo 38.2% would be a first sign of the downtrend reversal.
Shifting on the hourly chart, the trend is clearly indicated by the uptrend line which holds from the first day of December. MACD and RSI are near their equilibrium levels while ADX indicates negative directional movement. However, there is no hint from the price for a reversal of the current short-term uptrend. Thus, we would expect the pair to rise today up to the first resistance of 0.75 and upon penetration of it up to 0.749. The risks to the downside are near the supports of 0.7425 and 0.7375.
A corrective wave of the sharp uptrend of the Safe Haven currency has been formulated from the beginning of the month (just like AUDUSD, and we do not really believe in coincidences). The pair is making an effort to cross the SMAs to the downside while SMA50 has already penetrated SMA100 to the downside indicating a bearish alarm. If the price manages to penetrate SMA50 to the downside, then we would expect further downwards movement down to the level of 113.3 which coincides with SMA200 and Bollinger’s lower band. On the other hand, if the cross of the SMAs holds as a support, then the pair would most likely continue its uptrend targeting the resistance of 114.3.
On the other hand, the 4-hour uptrend is as healthy as it can be since there are no signs of reversal from the price itself. The price is advancing, walking above SMA50 and above the rest of the SMAs. RSI and MACD are contradicting since the first one is advancing and the second is slopping downwards, both above their equilibrium levels though. Moreover, ADX indicates indecision on the direction of the trend. It seems that the downwards movement on the hourly chart is just a near-term correction and the prevailing uptrend is still strong. Do not forget that in times of uncertainty, investors are shifting to the Gopher.
On the 4-hour chart the sharp uptrend found resistance on the psychological resistance level of 1.02 and it is currently trading at the time of writing below this level, attempting to break the support of Fibonacci 23.6% at the strongest support level for the pair-parity. Most probably the pair will trade above parity for a while since it is a strong psychological level for the traders. If this level breaks to the downside, then we would expect the price to move down to the next available Fibonacci level at 0.995. Otherwise, the prevailing uptrend will continue and the pair will go back to 1.02.
Shifting on the hourly chart, we clearly see a short-term downtrend which has currently found support on parity. Based on the pattern of the price for the last few days, a correction of the short-term downtrend is currently expected, up to the resistance of 1.012 and then it depends on whether this level will hold or not.
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