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The Australian dollar is sharply lower on Tuesday. In the European session, AUD/USD is trading at 0.6796, down 1.0% on the day.

RBA hikes by 0.50%, Aussie plunges

The RBA delivered a 0.50% rate hike for a second straight month, bringing the cash rate to 1.35%. The central bank has now hiked by 1.25% since May, marking the fastest series of moves since 1994. This aggressive stance didn’t do anything for the volatile Australian dollar, which has plunged over 1% today.

There had been some uncertainty as to whether the RBA would hike by 0.25% or 0.50%. However, when Governor Lowe warned that inflation could hit 7% by the end of the year, the markets priced in a 0.50% move. The Australian dollar’s sharp fall is surprising, as I would have expected the 0.50% hike to provide the currency with a short-lived jump. The Aussie’s woes appear to be part of a risk-off move in the currency markets, with the US dollar posting broad gains today.

The RBA’s 0.50% hike is a vote of confidence in the Australian economy by the RBA, as Lowe is betting that the economy is resilient enough to withstand a sharp increase in rates. Employment is at a low rate of 3.9%, job vacancies are at record highs and consumer demand remains robust. The housing sector has been hit by higher borrowing costs, which will likely dampen household spending in the coming months. Lowe has admitted that there is a “narrow path” between tightening enough to curb inflation or being too aggressive and causing a recession.

Attention will now shift to the Australian inflation report for Q1, which will be released in the last week of July. Inflation is expected to continue to accelerate, with a peak in inflation remaining elusive. The markets have priced in another 0.50% hike in August and expect the cash rate to hit 3% or even higher by the end of 2022.

AUD/USD Technical

• AUD/USD is testing support at 0.6849, followed by support at 0.6732
• There is resistance at 0.6933 and 0.7050

EUR/USD finally breaks down to the downside today, partly based on Dollar's strength, and partly on Euro's own weakness. Even if a 25bps rate hike is pre-committed by ECB in July, and another hike (probably at 50bps) in September, the central bank will certainly lag behind other major counterparts in policy normalization. Latest PMI data also point to heightened recession risk in Eurozone in the second half of the year.

EUR/USD's break of 1.0339 (2017 low) indicates resumption of long term down trend from 1.6039 (2008 high). Sustained trading below 1.0339 will confirm this bearish case and target 61.8% projection of 1.3993 to 1.0339 from 1.2348 at 1.0090. Parity is also looking vulnerable. This will now be the favored case as long as 1.0488 minor resistance holds.

EUR/CAD also breaks near term support at 1.3383 to resume the down trend from 1.5991 (2020 high). Next short term target is 61.8% rejection of 1.4633 to 1.3383 from 1.3713 at 1.2941. More importantly, the whole fall from 1.6151 (2018 high) is also on track to retest 1.2127 (2012 low).

UK PMI Services was finalized at 54.3 in June, up from May's 53.4. S&P Global said there was solid rise in business activity, but new work lost momentum. Business expectations slumped to the weakest level since May 2020. Input costs inflation held close to May's survey-record high. PMI Composite was finalized at 53.7, up from May's 53.1.

Tim Moore, Economics Director at S&P Global Market Intelligence: "The service sector remained in expansion mode during June, but persistently high inflation has started to dent discretionary spending and negatively influence demand projections across the board... June data highlighted the second-fastest rise in input prices since the survey began 26 years ago, driven by intense wage pressures and rapid increases in fuel costs... Service providers are casting a nervous eye over their sales momentum and forward bookings, which led to a slump in business activity expectations to their lowest since May 2020."

Full release here.

Eurozone PMI Services was finalized at 53.0 in June, down from May's 56.1, a 5-month low. PMI Composite was finalized at 52.0, down from May's 54.8, a16-month low.

Looking at some member states, Spain PMI composite dropped to 3-month low at 53.6. Ireland dropped to 16-month low at 52.8. France dropped to 14-month low at 52.5. Germany dropped to 6-month low at 51.3. Italy dropped to 5-month low at 51.3.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: "The sharp deterioration in the rate of growth of eurozone business activity raises the risk of the region slipping into economic decline in the third quarter. The June PMI reading is indicative of quarterly GDP growth moderating to just 0.2%...

"The manufacturing sector is already in decline, for the first time in two years, and the service sector has suffered a marked loss of growth momentum amid the cost of living crisis.... risks have increasingly tilted towards the economy slipping into a downturn at the same time that inflationary pressures moderate but remain elevated."

Full release here.

Bitcoin rose on Monday, ending the day at around $19,800. The recovery continues Tuesday morning, taking the exchange rate to 20,300 and adding 6.4% over the past 24 hours. Ethereum added 9.8% to $1160, while other top-ten altcoins gained between 2.7% (XRP) and 9.8% (Solana).

Total cryptocurrency market capitalisation, according to CoinMarketCap, rose 6% overnight to $917bn.

The cryptocurrency Fear & Greed Index rose 5 points to 19 by Tuesday, the highest level since May 7, near the upper edge of ‘extreme fear’ territory.

Traders took advantage of a US weekend when the stock market was not trading to buy. In addition, Asian trading is also moderately positive, adding to the optimism of retail participants.

According to CoinShares, capital inflows into crypto funds last week amounted to $64m, with the bulk coming from funds that allow shorts on bitcoin ($51m).

Cryptocurrency-related companies have had to fend off information attacks pointing to problems. Circle CEO Jeremy Allaire, for example, denied rumours of issues with the USDC stablecoin. KuCoin trading platform CEO Johny Lyu denied rumours of a possible exchange default and assured that the platform had nothing to do with LUNA or Three Arrows Capital.

Market veteran Peter Brandt said that USDT has no place in the financial system and that stablecoin will die soon.

Singapore-based cryptocurrency lending and trading platform Vauld, which targets the Indian market, announced that it is suspending withdrawals due to market volatility.

The developers of Solana blockchain-based decentralised finance (DeFi) project Crema Finance have suspended all operations due to a hack.

With such a background, the crypto market growth looks like the intention of retail to “buy when there is blood on the streets”. However, at this stage, when we see only timid attempts at growth, it would be too early to talk about confirmation of a broken downtrend.

GBPUSD formed a tiny neutral candlestick on Monday above Friday’s closing price of 1.2087 and below the nearby 1.2170 resistance territory.

The refusal to return to the two-year low of 1.1932 could be a rosy sign that buyers are absorbing selling pressures in the market as the price is currently trying to set a foothold around the 1.2100 level. Yet, the RSI is still preserving a negative trajectory well below its 50 neutral mark, and the MACD has recently ticked back below its red signal line, both downplaying any meaningful recovery.

The 1.2170 cap will remain in focus in the coming sessions as the constraining 20-day simple moving average (SMA) is also converging towards that region. A successful move higher from here may then attempt to knock down a tougher wall at 1.2270 with scope to revisit the crucial zone of 1.2360 – 1.2411. Notably, the 50-day SMA, the descending trendline from February, and the 23.6% Fibonacci retracement of the 2022 downtrend are all positioned here. Hence any violation at this point is expected to unleash faster bullish corrections, likely up to the 38.2% Fibonacci of 1.2626.

Alternatively, if downside forces dominate, driving the price below 1.2085, the spotlight will immediately fall on the 1.1988 - 1.1932 floor. Snapping that base, the bears could chart a new lower low around 1.2765 taken from the March 2020 limits, while deeper, the sell-off could stall near 1.1620, which was also somewhat restrictive during the same period.

In brief, downside risks keep lingering in the background despite the latest stabilization in GBPUSD. A step above 1.2170 or below 1.2085 could navigate the pair accordingly.

EUR/USD

Yesterday, the euro ended with a slight decline against the dollar, and in the early hours of today, the pair scored some gains. After a failed attempt to breach 1.0396 at the end of last week, it is possible that the bulls could try to attack the zone at 1.0460 – 1.0490. It seems that the bulls are feeling hesitant, and for the moment, they are more likely to defend their positions than to be on the offence. The market most likely expects a catalyst, and until then, trading may continue in the range between the 1.0396 support and the 1.0535 resistance. Sentiment remains negative, and a change would occur only if prices breach and hold above 1.0600. If the annual support at 1.0360 is also breached, then more serious declines targeting 1.0200, or even parity with the dollar, can be expected. Today, a series of data on business activity in the services sector for the eurozone countries would possibly boost market activity.

GBP/USD

Despite the low activity yesterday, the pair ended in green territory and the trend carried over into the early hours of today. The bulls are once again about to attack the highs at around 136.70, with the first obstacle for them being the resistance at 136.30. A breach of the zone at 136.70 would unlock the possibility of a rally targeting 138.50. In an alternative scenario and another failure of the bulls at breaching this resistance, it is very likely that the market will continue to trade in a range with a lower boundary of 134.77 and an upper one of 136.70.

USD/JPY

The Cable could not hold onto its gains and yesterday's session ended largely unchanged. The key area at 1.2170 was breached and is currently the first confirmed resistance. If prices fail to return above 1.2170, then another wave of sell-offs can be expected, with a breach of 1.1988 also not being excluded. First daily support is the level of 1.2100, but the zone is likely to prove unreliable. If the decline towards 1.1980 is interpreted as a test, then a more serious and prolonged bearish pressure can be expected. Sentiment remains negative and a change would occur only if prices remain above 1.2170.

EUGERMANY40

The German index started the week lower, but managed to stay above the 12740 support. In the early hours of today, the bulls attempted an attack on the 12940 resistance, but the target was not reached. Other attempts throughout the day are possible and a successful breach would bring prices back above the psychological border of 13000. The next resistance is 13170, and the key one is at 13370, which is unlikely to be reached at the moment. The trend remains bearish and the rallies are expected to be sold off. Since the middle of last month, the index has been trading in a descending channel, suggesting deep and sharp corrections, but the bears are still expected to maintain their dominance.

US30

Yesterday, due to the national holiday in the U.S., the markets lacked activity. Today, the blue chips are on the rise and prices are holding confidently above the 30930 support. Early this morning the bulls managed to break through the resistance at 31140 and may test the next zone at 31345. Negative market expectations have been building up in recent weeks and the prevailing consensus is for the declines to continue. Purely from a technical standpoint, there is some chance of a short squeeze occurring through a rally aimed at 32000, but such growth, even if materialised, would not be sustainable. For today, the main support for the bulls is 30930, and the first resistance is 31345.

Daily Pivots: (S1) 163.24; (P) 163.99; (R1) 164.97; More...

Intraday bias in GBP/JPY is mildly on the upside with break of 164.63 minor resistance. Further rise could be seen to retest 168.67 high. On the downside, below 161.56 will target 159.97 support. Firm break there will raise the chance of rejection by 167.93 long term fibonacci resistance. Deeper fall would be seen to 155.57 support for confirmation.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will now remain the favored case as long as 155.57 support holds, even in case of deep pull back.

Daily Pivots: (S1) 140.82; (P) 141.24; (R1) 141.86; More....

Intraday bias in EUR/JPY is turned neutral with current recovery. On the downside, break of 139.78 will target 137.83 support first. Sustained break there will raise the chance of rejection by 144.06 long term projection level and target 132.63 support. On the upside, above 142.42 minor resistance will bring retest of 144.26 high instead.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Sustained trading above 100% projection of 114.42 to 134.11 from 124.37 at 144.06 will indicate upside acceleration and target 149.76 long term resistance (2014 high). In any case, outlook will remain bullish as long as 132.63 support holds, in case of deep pull back.

Daily Pivots: (S1) 0.8596; (P) 0.8612; (R1) 0.8628; More...

Range trading continues in EUR/GBP and intraday bias remains neutral. As long as 0.8484 support holds, further rise is in favor. Break of 0.8720 and sustained trading above 0.8697 medium term fibonacci level will carry larger bullish implication. Next target is 0.9003 fibonacci level. However, break of 0.8484 will indicate rejection by 0.8697 and turn near term outlook bearish.

In the bigger picture, rise from 0.8201 medium term bottom could could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. Sustained break of 38.2% retracement of 0.9499 to 0.8201 at 0.8697 will affirm the latter case, and pave the way to 61.8% retracement at 0.9003. However, rejection by 0.8697 will maintain medium term bearishness.