FUNDAMENTAL ANALYSIS
Jason Cheung
AUD/USD
The Australian Dollar against the greenback has declined by 0.22% as it is now testing recent highs over the past weeks. Biden announced an oversupply of 180 million barrels from reserves over the next six months, sending crude oil, Australia’s second largest exported commodity, tumbling by 4.4% on Friday. US core PCE inflation jumped YoY to 6.4% in February, the steepest in a month since 1982, from 6% in January. The current PCE is running at three times the Fed’s target rate, which has resulted in greenback bullishness. US Non-farm payrolls gained by a sizable 431k in March and US unemployment rates fell from 3.7% to 3.6% bringing employment closer to pre-pandemic levels. Strong US labor market may begin to test AUD/USD pair recent highs as the greenback strengthens.
The RBA cash rate decision comes out on Tuesday, but they are projected to maintain the current cash rate. Economists believe that the RBA will continue to monitor April and June CPI and inflation data before lifting rates in August. Bendigo Bank’s David Robertson expects ‘A series of cash rate hikes up to around 1.5 per cent by mid-2023 should then follow.’. RBA has stated a cash rate increase is ‘plausible’ amidst the blows of Russia/Ukraine war to supply chains and commodities. Australian Balance of Trade data will be released next Thursday.
Finally, US ISM Non-Manufacturing PMI and Balance of Trade data come out next week so it will be interesting to see how the market will react to such news.
EUR/USD
The European Dollar against the greenback has seen an increase of 0.6% over the past week to 1.105, seeing a support level forming from recent lows. The lack of progress in Russia/Ukraine peace talks have boosted demand for safe-haven currencies such as JPY and Swiss Franc leading to EUR/USD continued decline. The euro continues to be vulnerable as today marks an important day for European energy supplies as Putin has demanded that future gas purchases must be paid for rubles instead of euros and dollars as previously agreed. Russia is Germany’s top gas supplier, accounting for 40% of their gas imports.With Germany’s rejection of Putin’s terms, Germany prepares for a potential gas rationing amid gas shortages. The euro begins to look vulnerable and has the potential to see lower lows as Europe’s face-off with Russia continues.
TECHNICAL ANALYSIS
Anton Ragusa
AUD/USD
The Australian Dollar continued to show strength this week, rallying from consolidation in the 0.738-0.74 price range, forming a strong daily demand zone in the form of a bullish breaker at the previous hourly supply. However, the strong momentum throughout the week has waned, as the AUD came up to touch the previous quarterly high and has now formed a range within the strong daily supply zone. A break through this key level would require extremely bullish news, such as an above expected cash rate announced on the 5th of April. Therefore, on current sentiment we are likely to see a breakdown of this range and a retest of the 0.738-0.74 demand or possibly the yearly open. Any level lower than this, such as the daily demand at 0.7 would not be seen unless the market sentiment changes drastically, possibly due to increased hostilities by Russia, which would result in a rush for safe haven currencies such as the USD.
EUR/USD
The Euro continues its strong downtrend against the Australian Dollar, however over the past month has shown potential signs of reversal. Twice in March the Euro has fallen and rallied significantly after a retest of the weekly demand at 1.46, a level not touched since 2017, coupled with the rising probability of peace between Ukraine and Russia the Euro could be seeing a change in sentiment to potentially fully form this double bottom reversal. In spite of this, the general market structure still indicates a downtrend and after a rejection from the VWAP(Volume Weighted Average Price) we could likely see a retest of the weekly demand to take out the large amounts of liquidity sitting under the Current Yearly Low at 1.455. Confirmation of the reversal would need both a change in risk sentiment, stemming from relative peace in Ukraine and also the reclaim and retest of the daily supply located at 1.52-1.533.