Australia’s Economy Slowed Sharply in second half of 2018, AUDUSD Down to Two-Month Lows

Asian indices finished mostly higher today following a mute session yesterday with Chinese stocks rising sharply since January, reversing much of the underperformance against other Asian indices over the last year. With trade negotiations frontier quiet, traders have to evaluate the more positive stimulus talks from China and continuing poor economic data globally to derive next trading moves.

In Japan, the Nikkei225 index lost 0.60 percent to 21,596, and the Hang Seng in Hong Kong added just 0.26 percent at 29,033. The Shanghai Composite rising 1.57 percent at 3,102, Australian shares rose by 0.7 percent or 46pts on Wednesday to 6245.6 thanks to gains across all sectors and despite softer data. Aussie indices have improved over five of the last six sessions, remain near five-month highs and are gaining for the third consecutive month.

European stocks were set to edge down at the open on Wednesday trading session following an uninspiring close on the other side of the Atlantic, as traders eye news on Sino-US trade relations and worse growth figures in Asian economies.

In commodities markets, the Crude oil lost 45 cents to $ $56.1/barrel while Brent oil fell 48 cents to $65.38 a barrel. Gold prices attempted a minor rebound near $1290 level amid subdued Treasury yields, but rejected and currently, the precious metal is trading at $1289.49. The precious metal price may find support at $1279 ahead of testing 100-day simple moving average down to $1265. US Dollar index is giving up some pips and now is trading at 96.88.

On the Lookout: Australian economy’s output grew by only 0.2% in the last quarter of 2018, following a similarly sluggish result in the 3Q, with output up by 0.3%. The Reserve Bank of Australia at Tuesday’s March board meeting, left the official cash rate unchanged for the 31st month in a row, as was expected, at a record low level of 1.5% but noticed that the economic growth might have slowed in the second half of 2018.

In the macro calendar today, the US ADP jobs report will be on the spotlight at 13:15GMT, followed by the US and Canadian trade data releases at 13:30 GMT. The Bank of Canada rate decision is due at 15:00GMT. The Bank of Canada is expected to HOLD rates unchanged at 1.75% amid a cautious stance on the economic interest rate outlook.

In Central Banks we have the speech by the Bank Of England MPC member Cunliffe’s speech at 12:15GMT while around 17:00GMT, we have the speeches by the FOMC member Williams and BOE MPC members Saunders ahead of the Fed’s Beige book release at 19:00GMT.

Trading Perspective: In forex markets, the NZDUSD tracked the sharp decline in AUD and dropped to three-week lows of 0.6752, the USDCAD remained in a bid and continues its upside move to 1.3361 having reached the high in Asian session at 1.3373.

AUSUSD: A worse than expected figure in the Australian economic growth in the fourth quarter hurt traders sentiment around AUD sending AUDUSD to two-month lows at 0.7027. Following the weak Q4 GDP report during the Asian trading session, rate cut odds for the October meeting spiked up to 67.6% now after having sat around a 50% call since February. Technical perspective in daily chart has developed a head and shoulders technical pattern, and I am looking for a break towards the downside now. In that case, the pair will target 0.6880.

AUDUSD Hourly (H1) Chart

USDJPY keeps the upbeat tone but is facing the 112 tough barrier ahead, and only a convincing break above can start a new bullish trend. Strong support stands at the 100 and 200-day moving average at 111.30 where demand will be strong.

JPY futures markets noted open interest rose more than 1.8K contracts on Tuesday from Monday’s final 205,321 contracts. Volume, instead, extended the downtrend for another session and decreased by around 4.5K contracts.

GBPUSD still feeling the rejection from last week’s 2019 tops beyond 1.3300 and currently trading well below the 200-hour moving average canceling the short term bullish trend although long term uptrend holds well as the pair is far away from the reverting daily moving averages. I expect the pair to make an attempt to regain the 1.3169 level to reestablish the short term positive momentum. Strong support for the pair waits at 200-day moving average at 1.2996.

Open interest in GBP futures shrunk for the fourth consecutive session on Tuesday, this time by almost 2.3K contracts from the previous day, according to preliminary data from CME Group. On the other hand, volume rose for the first time by around 61.8K contracts after four drops in a row.

EURUSD: The pair is extending the march south, breaking below the critical support at 1.1300 round figure and therefore opening the door for a potential visit to 2019 lows in the 1.1230 area, here is an excerpt from our yesterday European morning report: “offered bias is still intact for the pair as it approaches yesterday lows at 1.1310, and now it targets the support area at 1.1285 the low from January 24th, 2019, which if breached will drive prices down to yearly lows, a scenario that is not supported as the offers are diminishing below 1.30 level. “ The 1.13 mark has now turned into resistance, and now the common currency has to regain the 1.1352 figure where the 50 SMA in the hourly chart is crossing, to establish a short-term uptrend.  

In Euro futures markets, investors added nearly 8K contracts to their open interest positions, recording the third build in a row. In the same line, volume increased once again, this time by around 8.5K contracts.

EURUSD Daily Chart