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AUD stuck between key technical support and resistance handles

By OFX

The Australian Dollar edged lower through trade on the public holiday Monday as risk appetite turned negative and investors sold into rallies approaching 0.72. Having touched intraday highs at 0.7205 the AUD faded through late afternoon trade and the transition into the European session as weak earnings from the US hurt equities and basic commodities, driving down the global risk mood. Slipping to intraday lows at 0.7161 the AUD found support in stronger spot iron ore prices; the key export rallied nearly 5% touching highs not seen in 10 months, underpinning the AUD.

As Australian investors and liquidity return to the market after the long weekend our attentions turn to NAB Business confidence index for macroeconomic direction, with the RBA focus drawn to the conditions index as a measure of business activity and a marker of overall economic health. While broader confidence has fallen in recent months the conditions index has enjoyed a greater level of stability and a strong read could help alleviate and assuage fears the RBA is barreling toward a cut in interest rates.

We anticipate the AUD will remain larger range bound through the short term, with key technical supports propping up dips toward 0.7140 while resistance on moves above 0.72 and approaching 0.7230 intact. At time of writing the AUD sits in the middle of said ranges buying 0.7170 US cents.

The NZD chart during yesterday’s trading session looked like a capital Lambda, as it reversed its direction after climbing to a one-month high of 0.6871 and subsequently falling back to it’s trading open price of 0.6832. This volatility can be chalked up to the banking holiday in Australia and Auckland anniversary day where speculators become a more dominant market influence due to the illiquid markets.

The Statistics New Zealand organisation is due to release their Trade Balance data this morning, showing the different in value between imported and exported goods during the reported month. Expected to have a major impact on the Kiwi, a positive figure above its forecast of 225M will be good for the currency.

The NZD opens at 0.6832 against the USD this morning.

Overnight we saw the Great British Pound ease against the Greenback trading around 1.3150 level after last week’s biggest weekly rise in more than 15 months. The Pound Sterling has rallied more than 6 percent from Jan 4. lows and we could see that continue if UK lawmakers manage to break their Brexit deadlock this week with less than two months to go before the United Kingdom leaves the European Union, lawmakers have set up a series of votes in parliament on Tuesday.

On the release front monthly Mortgage Approvals will be released on Wednesday. Thursday will see the release of GfK Consumer Confidence and Nationwide House Price Index. Manufacturing PMI (Purchasing Managers' Index) will be close out the week on Friday.

From a technical perspective, the GBP/USD pair is currently trading at 1.3161. We continue to expect support to hold on moves approaching 1.3140 while now any upward push will likely meet resistance around 1.3185.

The US Dollar rose and fell over the last two business days as optimism came and went. Initially, the Greenback was well supported with news that the US and China were making headway in their negotiations. Adding to the positivity was President Trumps reopening of the government and healthy news on the Brexit front. Nevertheless, these gains were short lived for the United States Dollar as earnings season kicks off, unwinding nearly all the gains made on Friday. The US Dollar Index (DXY) opens this morning at 95.75 against a basket of currencies.

Monday saw the reversal of nearly all of Fridays gains as company earnings reports started to come in. Caterpillar and Nvidia both disappointed the market citing weaker growth in China and inciting a reversal in risk sentiment. The risk off tone spread throughout markets quickly and saw the US Dollar retreat marginally in some geographies.

Moving into Tuesday, the Greenback turns to more earnings reports with 100 of the S&P500 reporting this week. Also of note is the resumption of US-China trade talks.

The Euro has recovered losses sustained last week following Mario Draghi’s dovish comments during the ECB conference on Thursday evening. The EUR/USD was positive in its movements to start the week rebounding from lows on the 25th January of 1.1298 to a two-week high of 1.1443.

Testifying overnight before the European Parliament Economic and Monetary Affairs Committee overnight in Brussels, ECB’s President Mario Draghi noted the ECB was open to resuming quantitative easing if needed but unlikely in 2019. Growth continues to be softer than expected and was critical on demands from external countries as geopolitical factors continue to weigh on the European landscape.

On the macroeconomic front there is little to take note of today other than Spanish Unemployment rates as Europe’s common currency opens this morning at 1.1425

On Monday the Canadian Dollar reached an overnight high of 1.3285 before settling down around 1.3250 level. The Canadian dollar still holding on to last Fridays boost courtesy of the U.S. president Donald Trump. who signed a bill which provided funds for the U.S. government to operate for three weeks.

On the release front today, there are no events on the scheduled. Looking ahead this week and the Federal Open Market Committee meeting on Wednesday will be the salient event this week with interest rates expected to remain at 2.5 percent. Locally this week, its fairly quiet, with the only major release will be the monthly GDP figures in the Canadian economy on Friday.

From a technical perspective, the USD/CAD pair is currently trading at 1.3255. We continue to expect support to hold on moves approaching 1.3178 while now any upward push will likely meet resistance around 1.3318.