The USD maintained a stable course yesterday against a number of its counterparts, staying just above the 90.75 support line in the USD Index. Today the market’s attention turns to the FOMC interest rate decision and despite the bank expected widely to remain on hold at the range of 0.00%-0.25%, comments made by Jerome Powell in his press conference and the accompanying statement could shape the market’s mood. Despite voices for some sort of tightening of the bank’s monetary policy growing louder, given the US economic recovery, we see the case for the bank to remain rather dovish, as Fed Chair Powell was in recent statements, recognizing progress, yet highlighting also risks for the US economy. Overall, we see risks related to the release being tilted to the bearish side for USD, unless the Fed fails to meet the market’s dovish expectations. On second note we would highlight Biden’s speech today, before a joint session of Congress and the US President is expected to roll out his fiscal investment plans, yet at the same time also comment on his intentions to increase taxation. Overall, despite increased fiscal spending being a positive for the markets, the plans to increase taxation could create worries especially for the equities markets, should they become more concrete.
The USD index seems to have stabilised finding support at the 90.75 (S1) level. We are about to switch our bearish outlook in favour of a bias for a sideways movement initially, yet we would require the index’s price action to break more clearly the downward trendline guiding the index since the 31st of March. Also please note that the RSI indicator below our 4-hour chart is at the reading of 50, implying a rather indecisive market. Should the bears regain control over the index’s direction, we may see it breaking the 90.75 (S1) support line and aim for the 90.25 (S2) support level. Should the bulls take over, we may see the index breaking the 91.30 (R1) resistance line and aim for the 91.65 (R2) resistance level.
AUD slips also due to lower than expected inflation
AUD weakened against the USD yesterday and the commodity currency was pushed lower as Covid cases globally are increasing, especially in India, while the Aussie’s bears were also fueled by a weaker than expected CPI reading for Q1. The actual CPI rate accelerated reaching 1.1% yoy, yet missed expectations to reach 1.4% yoy, which could enhance RBA’s dovish outlook, as inflation remains lower than the bank’s 2-3% target band. At the same time, it should be noted that iron ore and copper prices remain at high levels, providing some support for the Aussie. Given the lack of high impact financial releases scheduled from Australia, we expect fundamentals to play a key role for AUD’s direction today.
AUD/USD dropped yesterday breaking the 0.7785 (R1) support line, now turned to resistance and proceeded lower to test the 0.7725 (S1) support line. For the time being we adopt a bearish outlook for the pair given that in its bearish movement, a downward trendline for the pair has started to form and we intend to keep the bearish outlook as long as the pair remains below the downward trendline. On the flip side it should be noted that the pair’s main body of price action since the 14th of April, is between the 0.7785 (R1) resistance line and the 0.7725 (S1) support line in a wide sideways motion. Hence, we expect that the clear breaking of the 0.7785 (S1) could enhance the bearish outlook as a make or break point, while at the same time would pave the way for the 0.7665 (S2) support level. Should the bulls take over, we may see the pair breaking the prementioned downward trendline, the 0.7785 (R1) resistance line and start aiming for the 0.7850 (R2) resistance level.
Other economic highlights today and early Tuesday:
During today’s European session we get Germany’s Gfk Consumer Sentiment for May and Sweden’s retails sales for March, while in the American session we get Canada’s retail sales for February, while oil traders may focus on the weekly EIA crude oil inventories figure.
Support: 90.75 (S1), 90.25 (S2), 89.65 (S3)
Resistance: 91.30 (R1), 91.65 (R2), 92.15 (R3)
Support: 0.7725 (S1), 0.7665 (S2), 0.7595 (S3)
Resistance: 0.7785 (R1), 0.7859 (R2), 0.7905 (R3)