Morning Report: China Easing Fails To Support AUD Ahead of RBA

KEY DATA RELEASES TODAY (GMT) :

0930 GBP UK PMI Manufacturing exp 53.4 v 53
1000 EUR Eurozone Consumer Price Index exp 0.6% v 0.6%
1500 USD ISM Manufacturing exp 53 v 53.5

OVERNIGHT:

Weekend focus was on China after the PBOC stepped up its easing tempo and cut its lending and deposit rates – both lowered by 25 basis points to 5.35% and 2.5% respectively. The weekend rate cut was a surprise in timing though no surprise in continuing the easier policy approach begun last year. Markets anticipate further rate and RRR cuts, the pattern likely to be one followed by the other. China is rarely allowed any credit for being pre-emptive/pro-active, thus the cut seen as ‘surely’ a forerunner of softer data ahead.

AUDUSD failed to gain any support from the news out of China. Having opened at 0.7840 it traded straight down from an early high of 0.7850 to 0.7762. Tomorrow brings the RBA where the market is pricing in 50% chance of a cut by 25bps to new historical low of 2.00%.

Weekend news from Sunday Telegraph said German finance minister Wolfgang Schaeuble has softened his hard-line attitude towards Greece, saying its new Left-wing Syriza government needs “a bit of time” but appears to be able to work towards resolving its debt crisis. But in FT, Jeroen Dijsselbloem, the Dutch finance minister warned Greece must immediately start adopting some of the economic reforms demanded by its creditors if it is to receive much needed access to emergency funds in the face of a mounting March cash crunch. EURUSD consolidated at lows Friday after Thursdays plunge and ended the week with a 1.66% drop, focus today will be on Eurozone inflation figures for February. Overnight stops were triggered below Friday’s low of 1.1178 with the EURUSD trading down to 1.1160 before stabilising.

GBPUSD appreciated slightly on Friday despite US GDP data beating forecast marking a weekly gain of 0.25%, closed the week at 1.5432. key data today will be the British manufacturing PMI for February, forecast 53.4.

USDJPY dropped slightly against the dollar with the data on Friday showing that US economy grew modestly over the fourth quarter of 2014. Japan’s unemployment rate slightly increased to 3.6% in January, forecast at 3.4% while Japan’s nationwide inflation data met market’s expectation in January coming in at 2.4% annually. With UST yields up and the Nikkei up USDJPY ran into resistance ahead of 120.00. Market is cautious as we approach the 120 handle. There will be Japanese corporate repatriation flows into the month of March and this 120 level is likely a key zone for those flows to kick in.

Looking ahead, UK PMI manufacturing will be the main focus this morning. Eurozone CPI is forecast to drop -0.5% yoy in February. In the US session, we get ISM manufacturing, US personal income and spending.

PRICE ACTION OVERVIEW:

EUR: While 1.1270 caps upside targets 1.10/09 above 1.1280 suggest false break in range trade
GBP: 1.5550 rejects while 1.5480 contains upside reaction, donwtrend to resume targeting 1.49
JPY:  While 118.50 supports expect break of 120.50 and target 2014 highs beyond
CAD: 1.2350 trendline supports 1.28 next upside objective ahead of key 1.30
AUD:  0.79 rejects corrective advance while .7860/80 contains downtrend to resume targeting .75

KEY TRADES:

FX PairShort TermPosition/DateEntry LevelTargetStopComments
EURUSDBearishSell/03 Mar 1.1165Open1.1285
GBPUSDNeutralAwait new signal
USDJPYNeutral Await new signal
USDCADNeutralAwait new signal
AUDUSDNeutral Sell/03 Mar .7760 Open.7860

ANALYSIS:

EURUSD Short Term (1-3 Days): Bearish  – Medium Term (1-3 WeeksBearish

  • Friday’s close below 1.12 was a bearish development as such while 1.1280 caps any upside corrections immediate focus is on a retest of year to date lows
  • Order Flow indicators; OBV retesting lows lows, Linear Regression and Psychology bearish
  • Shorts in play, please see key trades for details

eur2015-03-02 07_15_06-

GBPUSD: Short Term (1-3 Days): Neutral – Medium Term (1-3 WeeksBearish

  • 1.5550 resistance holds firm, while 1.5460/80 caps correction against last Thursday’s decline there is the potential for downtrend to resume and target year to date lows
  • Order Flow indicators; OBV consolidates at lows, Linear Regression and Psychology pulling back to test midpoint form above.
  • Monitoring price action at the 1.5460/80 area or a break of yesterdays lows to set shorts.

gu2015-03-02 07_18_46-

USDJPY: Short Term (1-3 Days): Neutral  – Medium Term (1-3 WeeksBullish

  • Advance stalling at 120 with larger offers anticipated at 120.50 a break here targets 2014 highs and the 124 level beyond bullish bias remains intact above 118.50
  • Order Flow indicators; OBV continues drifting back towards recent highs, Linear Regression supported at midpoint, Psychology bullish
  • Monitoring price action and Order Flow indicators to set longs to target 2014 highs

uj2015-03-02 07_25_25-

USDCAD: Short Term (1-3 Days): Neutral  – Medium Term (1-3 Weeks) Bullish

  • 1.2350 attracts buyers and supports expect retest and break of 1.28 on route to key 1.30 resistance.
  • Daily Order Flow indicators; OBV just off recent highs, Linear Regression attempting to regain midpoint from below, Psychology bearish
  • Monitoring price action and Order Flow indicators to set long positions targeting 1.30

uc2015-03-02 08_23_10-

AUDUSDShort Term (1-3 Days): Neutral  – Medium Term (1-3 WeeksBearish

  • .79 the key upside hurdle to further corrective upside below .77 threatens retest and potential break of lows for early trend resumption targeting .75 next
  • Order Flow indicators; OBV ticking down but above recent lows, Linear Regression and Psychology bullish but stalling
  • Short orders in play, please see key trades for details

au2015-03-02 08_25_40-

 

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