FUNDAMENTAL ANALYSIS
John Nguyen
AUD/USD
The Australian Dollar has been volatile lately, ending the week 0.10% higher to trade at 0.694 due to conflicting economic factors causing price action to fluctuate wildly. On the upside, oil and coal have increased in price which has helped to improve our terms of trade. However, there has been increasing concerns on the inflationary pressures in Australia, and speculation that the RBA will continue to increase the cash rate to up to 3.25% in the hope of controlling inflation that is set to reach 7% this year. Currently, we can see that AUDUSD is still bearish and will likely stay that way for the upcoming months as the interest rate differential widens between the RBA cash rate and the US Federal Funds rate.
GBP/USD
The British Pound is 0.44% higher at 1.227 despite the recent strong bearish movement in the last couple of months, which can be attributed to weakening domestic trade and increasing inflationary pressures. On 22 June, inflation figures revealed that the headline rate had reached 9.1%, with some economists predicting that inflation has yet to peak and is likely to continue to climb over the coming months. In order to combat this, Bank of England economist Catherine Mann recommended that the central bank should aggressively raise its cash rate in order to reduce inflation and strengthen the Pound. In addition, economic growth has slowed down in recent months, which the Bank of England has considered to be a strong indicator towards an inevitable recession. Therefore, the negative sentiment may cause investors to further dump the Pound.
TECHNICAL ANALYSIS
Jason Cheung
AUD/USD
The Australian Dollar rose slightly over the past week by 0.10% to sit at 0.694. The recent recession fears, high inflation and tightening monetary policy have weighed down on the AUD. However, its recent bullish re-test and potential reversal can be attributed through Australia’s positive manufacturing PMI data. It will be interesting to see whether the AUD will be able to produce more volume to push its price to the 0.7 level, its next resistance level. If a re-test at that level is successful, we could see the AUD testing its 30 EMA, which currently sits at 0.705. RSI levels sit at 43, which shows that short-term rally is certainly possible at this point. However during this time-frame, technical indicators continue to remain at negative levels. False breakouts remain a possibility, and any further negative risk sentiment and recession fears could see the AUD break to its June lows.
GBP/USD
The Great British Pound in the past week rose by 0.44%, reversing its previous low of 1.19 to a current price of 1.227. With a breakout of the 1.215 resistance, we continue to observe a bullish reversal this week, however a resistance is beginning to form closer to the 30 day EMA. It will be interesting to see whether we see a breakout above the 30 day EMA, in which case we could potentially see the price moving towards the 1.26 level. Bullish momentum is evidenced through the MACD breaking past its signal line. However, there is a lot of resistance to climb through, and given the recent outlook of increasing inflation, global rate hikes, slow economic growth, bearish traders continue to bear down on GBP. While the trend-line continues to look severely bearish with the previous week’s lower high at 1.2406 looking like it could prove to be problematic in the short-run, we could see a major breakout in the short-term if the currency continues its bullish reversal in the following week. A false breakout could see the GBP trade below 1.200, which is possible especially amidst continued economic tensions between Europe and Russia.