JPY strengthened the most since mid-January as the flight to safety caused by the trade wars, continued on Friday and during today’s Asian session. US and Mexican officials prepare for negotiations, after the US announced its intentions to impose tariffs on Mexican imports. The US tariffs on Mexican imports caught the markets by surprise analysts noted, as Mexico is considered a major trading partner of the US. Mexico’s president had hinted that his country could tighten controls at the US border, in an effort to defuse the tensions with President Trump. Simultaneously the US-Sino trade wars are also still ongoing, with eyes turned to the Osaka G20 meeting and a possible meeting between the leaders of the US and China. If tensions continue to fuel a risk averse climate in the markets, then safe havens could strengthen further. USD/JPY dropped below the 108.50 (R1) support line (now turned to resistance). We could see the pair maintaining its current bearish trendline and for our opinion to change we would require a clear breaking of it. Please note that the RSI indicator in the 4 hour chart is below the reading of 30, implying a rather overcrowded short position. Should the bears control the pair’s direction, we could see it breaking the 107.90 (S1) support line and aim for the 107.20 (S2) support barrier. Should the bulls dictate the pair’s direction, we could see it breaking the 108.50 (R1) line and aim for the 109.15 (R2) resistance hurdle.
RBA Interest rate decision
In the late Asian session tomorrow (04:30,GMT), RBA is to announce its interest rate decision and is widely expected to cut rates by 25 basis points reaching +1.25%, if compared to current level of 1.50%. The market seems to have priced in such a development and currently AUDOIS imply a probability of 85.68% for such a scenario. According to analysts the bank’s intention may be to cut rates further and some even speculate up to 3 rate cuts in 2019. Should the bank cut rates and accompany its decision with a dovish accompanying statement to pave the way for further rate cuts, we could see the Aussie weakening substantially. AUD/USD broke its sideways movement yesterday by breaking the 0.6920 (S1) resistance line (now turned to support). We could see the pair weakening in anticipation of the RBA interest rate decision, yet trade tensions could also affect the pair’s direction. Should the pair’s long positions be favored by the market, we could see it aiming for the 0.7000 (R1) resistance line. Should the pair come under the selling interest of the market, we could see it breaking the 0.6920 (S1) support line and aim for the 0.6860 (S2) support level.
Other economic highlights, today and early tomorrow
Today during the European session we get UK’s manufacturing PMI for May and in the American session we get the US ISM manufacturing PMI for May.
As for the rest of the week:
On Tuesday, we get from the UK the Construction PMI for May and Eurozone’s preliminary CPI for May. On Wednesday, we get from Australia Q1’s GDP from the UK the services PMI for May and the US ISM non Mfg PMI for May. On Thursday, we get from Australia April’s trade balance, Germany’s industrial orders for April, ECB’s interest rate decision and from Canada the Ivey PMI for May. On Friday, we get from Germany the industrial production for April, Germany’s Trade balance for April, the US employment report for May, as well as Canada’s employment data for May.
Support: 0.6920 (S1), 0.6860 (S2), 0.6760 (S3)
Resistance: 0.7000 (R1), 0.7065 (R2), 0.7120 (R3)
Support: 107.90 (S1), 107.20 (S2), 106.60 (S3)
Resistance: 108.50 (R1), 109.15 (R2), 109.75 (R3)