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Aussie downside bias remains - capped under 73 US cents

By OFX

The Australian Dollar is slightly weaker this morning when valued against its US counterpart. Overnight the AUD/USD pair fell to a fresh yearly low of 0.7259 on the back of falling equities market which fell to fresh multi-month low amid the unstoppable decline of the Turkish Lira. The lira is still under pressure this morning but is holding within yesterday’s range against the USD.

On the data front today, China will release Industrial Production and Retail Sales, both for July. Industrial Production is expected to have increased by 6.3%, while sales are seen up 9.0%, matching June's reading. While locally we will see the release of the July NAB's Business Confidence and Business Conditions indexes, seen unchanged at 6 and 15 respectively.

From a technical perspective, the AUD/USD pair is currently trading at 0.7272. We continue to expect support to hold on moves approaching 0.7250 while now any upward push will likely meet resistance around 0.7290.

The New Zealand Dollar stabilised in overnight trading after a sharp move lower on Friday due to the developing story in Turkey. Monday reflected these concerns with the ‘risk-off’ sentiment spreading to equity markets. Initially the Kiwi moved to a low of 0.6557 before trending upwards and oscillating in a tight range for most of the day. Opening this morning at 0.6576, the New Zealand Dollar continues to trade on the back foot with attentions firmly affixed on the headlines.

It wasn’t all doom and gloom for the Kiwi however with the Australian Dollar feeling the effects of market instability in emerging markets more acutely. The net effect for the NZD/AUD was a small recover to now touch 0.9045. Otherwise, the domestic economic calendar remained mostly irrelevant for the exchange rate with little impact from the FPI reading. It did however show that the change in the price of food for households had a marginal improvement over the forecast which could contribute to a higher CPI print in the future.

Moving into Tuesday, the Kiwi again remains focused on developing headlines from abroad while keeping an eye on China’s busy economic calendar.

The Pound Sterling opens this morning at 1.2760 against the worlds reserve, having moved between a low of 1.2734 and a high 1.2791 during Mondays session. In the absence of any domestic data the Pound is still under pressure as we see Greenback strengthen on the back of Turkish sanctions imposed by the U.S.

With the impending risk around Brexit negotiations as investors’ fear that Britain's departure from the European Union will be fractious. Brexit talks are set to resume this week after a summer break and could potentially be a catalyst for further downside moves.

The week ahead is set to bring solid economic data from the UK including strong July labour market report, with wages rising 2.6% and the unemployment rate stuck to a 4-decade low of 4.2%. The UK inflation is expected to accelerate slightly in July while retail sales are seen rising modestly in the same month.

Support levels sitting at 1.2720 and 1.26870, with resistance up at 1.2798 and 1.2830.

The Turkish Lira continued its plunge against the US Dollar as the Lira remains the major headline for the week. At one stage a drop of more than 7% occurred and the USD/TRY breached 7 lira per dollar for the first time in its history of trading. Global stocks continued its fall as uncertainty of the fallout in Turkey caused equity markets to be lower across the board.

European markets were also subdued seeing the Stoxx and Dax both falling 0.5%, contagion gripping the markets as some of the largest banks in Europe look at their exposures to Turkey, and the effects of a potential fallout to emerging markets globally. EUR/USD remained relatively square and sits just above the 1.14 mark on open this morning.

The US Dollar Index remained at 14-month highs, above the 96.00 handle and up 0.06% for the day despite the Dow shedding 0.5%. The Nikkei dropped 2% for the day, and the USD/JPY was steady at 110.75 after seeing initial Japanese Yen strength on open in a move to safe haven assets. The Calendar today is focused on China and Australia as investors looks for currencies to stabilise heading into mid week.

The Euro traded sideways overnight with intraday lows at 1.1366 and session highs at 1.1433 as global risk sentiment stabilised overnight. We open this morning at 1.1405 against the greenback, a modest 0.1% depreciation. Developed market equities open only slight lower with the majority of the Eurostoxx 0.5% fall attributable to softness in the banking sector with investors concerned about the exposure of European banks to the fallout in turkey.

Comments from ECB banking supervisory board member Joachim Wuermeling overnight advised investors to remain calm and not ‘over dramatise’ the risks to the European banking sector. He reiterated that the ECB wields the authority to impose more additional capital requirements on at risk banks should they feel the need.

From a technical perspective, notable EUR/USD supports are evident at 1.1310 and upside resistance can be seen at the 1.1450 level. Along with German CPI and GDP reads (due out Tuesday European time), traders will be keeping an eye on price action in the EUR/JPY pair as they seek guidance for broader EUR direction and risk sentiment.

A quiet session for the Loonie overnight with the USD/CAD pair trading in a 12-pip range as subdued oil prices had no influence on the commodity-linked currency. After last weeks events out of emerging markets, traders remained cautious as risk sentiment maintained elevated levels; ultimately aiding the USD, JPY and CHF.

In the background WTI prices are having a tough time recovering last week’s losses which saw the spot price retreat nearly $1. It’s a light week for the loonie in terms of releases however CAD traders will be closely watching US import/export price indexes due Tuesday before the ever important Canadian CPI print due out on Friday.

Key technical levels leading into these risks events will be the 1.3200 resistance level and on the downside supports can be seen at 1.3015 and 1.2960 respectively.