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RBA Focused On Housing Data

Aussie dollar is failing to find any luck among traders, there are concerns about the upcoming Federal elections in Australia. This comes in the midst of speculations that the Reserve Bank of Australia is likely to change its stance towards the monetary policy.

Property prices are tumbling and households have tightened their belt towards their spending. Remember, in Australia, the household spending accounts nearly 60 percent toward the gross domestic product. The government has promised the tax cuts and cash handouts, these factors are likely to support consumer spending.

It is widely expected that the bank is going to cut the interest rate, but I think it may be a little too early to say that. The economic picture does look soft, but it doesn’t show that the economic conditions are dire.

Housing market data is the key matrix for the central bank and if the Reserve Bank of Australia sees the data is deteriorating further, it may pull the trigger on the interest rate cut. This may happen as soon as August. The upcoming home loans number, due tomorrow, may provide a better picture of this.

In terms of economic data for this week, we have RBA’s Debelle’s speech on Wednesday and the banks' financial stability review on Friday. Both have the ability to bring some swings for the currency.

Labour Party In Lead While Speculators Have Ranched Up Short Bets

Between now and the May 18th when the nation will head to the polls, we are expecting more weakness for the currency. Newspoll shows that Labour is leading the game for the time being. But the lead margin is narrow and it hasn’t improved much either if you compare this to the previous month figure. Speculators are seeing an opportunity here and we can see that the leveraged funds have increased their short positions. The yield on the government 3-year bond has dropped by three basis points, and on the 10-year it declined nearly four basis points

Aussie Stocks With Big Momentum

In terms of stocks, we like Afterpay Touch Group Ltd, Doman Holdings Australia, and Magellan Financial group because of the strong momentum, they are trading above the 20/50/200 MAs and the RSI is also confirming the momentum. As for the laggers, AVEO Group and National Storage are in the bearish trend- the RSI is confirming that the bears are in control of the price.

In terms of highest short interest increase, APA Group, Southern Cross Media are sitting at the top of the table and these stocks may see serious downward move.

Daily Pivots: (S1) 125.15; (P) 125.33; (R1) 125.47; More....

Intraday bias in EUR/JPY remains neutral at this point. Current development argues that corrective pull back from 127.50 might have completed already. Hence, further rise is expected as long as 124.47 minor support intact. On the upside, above 125.50 will turn bias to the upside for 126.78/127.50 resistance zone. However, on the downside, break of 124.47 will turn bias back to the downside for 123.65 support instead.

In the bigger picture, EUR/JPY is staying well inside medium term falling channel from 137.49 (2018 high). It's also held below 55 week EMA (now at 127.53). Thus, down trend from 137.49 might still extend lower. Break of 118.62 will target 109.03/114.84 long term support zone. On the upside, however, break of 127.50 will solidify the case of medium term bullish reversal. Rise from 118.76 should extend to 133.12 key resistance instead.

Weaker dollar pushed sterling from one-week low in Asian trading on Monday, but recovery attempts from one-week low at 1.2986 (Friday) following two-day 1% fall, are likely to be limited.

Friday's bearish close within daily cloud (after thick ascending cloud underpinned the action in past couple of weeks) was negative signal.

Strong bearish momentum and bearish crosses of daily MA's add to negative tone for final attack at key 200SMA support (1.2977) which was approached on Friday.

Bears need confirmation on close below 1.3005 (Fibo 38.2% of 1.2397/1.3381) and 200SMA that would signal extension of short-term downtrend from 1.3381 (2019 high posted on 13 Mar) towards 1.2932 (100SMA) and 1.2889 (50% retracement of 1.2397/1.3381).

Recovery stays under strong barriers at 1.3091/99 (daily cloud top / 10SMA) for now and keep bearish bias.

Break higher would ease pressure, but only close above 1.3157/65 (20/30SMA's) would sideline bears.

Brexit clock is ticking but all options remain on the table as key information, how and when the UK will leave EU, are still not known.

Confusion in the UK following the most recent talks between PM May's party and the opposition, as May says they are close to find a deal and the opposition disagrees, maintains high uncertainty.

May asked the EU for extension till 30 June, but little progress on this subject was seen so far, as some EU members expressed doubts about May's plan to further delay Brexit.

EU emergency summit on Brexit is the key event and expected to give more details about final steps of divorce process.

Res: 1.3072, 1.3091, 1.3122, 1.3156
Sup: 1.3025, 1.3005, 1.2977, 1.2932

The precious metal closed flat on Friday despite the initial volatility from the payrolls report. The overall strength in the US dollar and the mixed market sentiment kept the precious metal in check.

Can XAUUSD Breakout from the Consolidation?

XAUUSD closed on Friday with a doji pattern, marking a whole week where price remained flat near 1285 support. The current rebound off this level is pushing gold prices slightly higher. We expect price to test the 1300 – 1305 level in the near term but further gains are unlikely. Watch for a reversal pattern near the resistance area for a possible reversal back to 1285 support and an eventual breakdown lower.

British PM May sought another request for an extension to the Brexit deadline on Friday. The UK now seeks the date of June 30th to give it more time to get the deal through parliament. Currently, the UK is expected to leave the EU on the 12th of April. An emergency EU summit is to be held on 10th of April as any extension needs the approval of all 27 EU leaders.

Can GBPUSD Rebound from the Support?

The currency pair lost 0.29% on Friday after price touched down to the support area of 1.2992 – 1.2971 before pulling back. Currently, cable is seen attempting to rebound higher. Price action remains trading sideways within the support area and the resistance level of 1.3312. We expect this range to hold with some upside for the British pound.

Germany's factory orders report on Friday saw a 0.7% increase in activity. This was slightly higher than the estimates of a 0.6% increase and follows a flat print from the month before. The common currency was, however, muted on Friday. The Sentix investor confidence report is due later today which could be the main event risk for the common currency.

Will the EURUSD Maintain Its Range?

The EURUSD has failed to break out from the resistance level at 1.1346. Friday's price action briefly tested this level before prices plunged. However, we see that the consolidation has given rise to an ascending triangle pattern. A breakout from here could see price testing 1.1276 resistance in the near term.

Insufficient support for any version of Brexit

This week is going to be another dramatic week in Brexit land. While PM Theresa May has sent a letter to Donald Tusk asking for an extension to 30 June, we do not think the mood in Brussels is for another short extension. Our base case is the EU will grant the UK a year-long extension with the flexibility to leave earlier if/when the Withdrawal Agreement is passed (75% probability). We assign a 10% probability of a short extension.

While the EU leaders are sick and tired of dealing with Brexit, we think the probability of a no deal Brexit is low but not negligible (10%). Brexit is also about what is going to be written in the history books. The problem remains, however, that the EU leaders have to take the decision unanimously, and so far the UK has not really come up with a good explanation to why they should be granted an extension at all. Also not all countries are exposed to Brexit to the same extent as the northern European countries, either economically or politically. The EU leaders meet on Wednesday 10 April and the meeting starts at 18:00 CEST.

A big surprise last week was PM Theresa May's intervention, where she finally put country above party by reaching out to Labour leader Jeremy Corbyn in an attempt to strike a cross-party deal. While it may seem puzzling for people living in the Nordic countries that she has not done this before, the political system in the UK is very different from the Nordic system, as there is no tradition of cross-party solutions. Still, May revealed she did not want to be the Prime Minister taking the UK out without a deal with all its many possible negative consequences. The negotiations between May and Corbyn are ongoing but a breakthrough does not look imminent. Even if they reach an agreement, they still need to persuade the backbenchers to vote in favour, which may be easier said than done, as the compromise may involve a permanent customs union. We think the probability of the Withdrawal Agreement passing before 10 April is just 5%.

EUR/GBP has traded in the 0.85-0.87 range for some time now and we expect it will continue to do so until we get some clarification over the coming days. Our base case with a long extension would probably be slightly GBP-positive and we could see EUR/GBP trade in the 0.84-0.86 range. In the event of a no deal Brexit, we still expect EUR/GBP to move towards parity. We continue to expect EUR/GBP to move down to 0.83 if the Withdrawal Agreement passes.

Looking at economic activity in the UK, the PMIs indicate growth around 0.0-0.1% q/q in Q1. PMI Services dropped below the 50 threshold and is now indicating negative service sector growth. PMI Manufacturing is very high, as manufacturers have been stockpiling ahead of Brexit. This shows up as positive growth but is actually negative, as it is borne out of fear. Both consumer and business confidence indicators remain subdued

Pivot (invalidation): 111.65

Our preference Short positions below 111.65 with targets at 111.20 & 111.00 in extension.

Alternative scenario Above 111.65 look for further upside with 111.80 & 112.00 as targets.

Comment The RSI has broken down its 30 level.

Pivot (invalidation): 1.3030

Our preference Long positions above 1.3030 with targets at 1.3080 & 1.3115 in extension.

Alternative scenario Below 1.3030 look for further downside with 1.3005 & 1.2985 as targets.

Comment The RSI calls for a new upleg.

Pivot (invalidation): 1.1210

Our preference Long positions above 1.1210 with targets at 1.1235 & 1.1255 in extension.

Alternative scenario Below 1.1210 look for further downside with 1.1200 & 1.1185 as targets.

Comment The RSI calls for a rebound.