London Forex Report: RBA Surprise Cut Sinks AUD

London Forex Report: RBA Surprise Cut Sinks AUD

London Forex Report: Global manufacturing readings showed manufacturing sector is losing steam again in April, spurring concerns the world remains trapped within a modest growth backdrop. With the exception of Eurozone, prints out of the US and Japan, and earlier China, all signaled slower manufacturing activities. While the US and China readings continued to show expansions albeit at a slower pace in factory outputs, Nikkei survey showed manufacturing production continued to deepen its fall in Japan. On the contrary, final report from Euro area affirmed that the sector expanded at a slightly quicker pace with the index ticking up 0.1 point to 51.7 in April. In in line with recent Fed rhetoric, San Francisco Fed President John Williams cautioned against risks of broad- based declines in asset prices but indicated that the US economy is ready for higher interest rates albeit at a very gradual pace of hike. USD fell against on continued fading of rate hike expectations as US data slipped further. The USD Index extended its decline, closing 0.49% lower at 92.62.

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Fundamental: EUR rose to 1.1536, the highest level since 24 August 2015, after a report showed manufacturing in the currency bloc expanded at a faster pace than initially estimated. Markit Economics released that its monthly Purchasing Managers Index for the region rose to 51.7 from 51.6 in March, above a provisional reading of 51.5, although the figures still pointed to “anemic” factory growth.

Technical: EUR bulls now target a weekly AB=CD target of of 1.1766, intraday support is now sited back at prior resistance which should now act as support 1.1460/80 area, while this holds expects a grind higher to test previous reaction highs at the 1.1710 level.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Fundamental: Public holidays in the UK Monday. GBP kept its buoyant tone capped by 1.4700 handle, having advanced up to 1.4695, its highest level in four months, and held nearby at the end of the day. The UK will release its manufacturing figures today, and it is expected to see a pick-up from the previous reading of 51.0

Technical: 1.4670 achieved bulls now set their sites on the psychological 1.50 levels. Near term support is sited at 1.45. While this area contains downside reactions expect continued upside pressure
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: USDJPY dropped to an 18-month low printing sub 106. The Bank of Japan governor Kuroda said on Monday that the recent strengthened yen may hurt the local economy while there will have no hesitation to take additional policy if needed to achieve 2% inflation target. Besides, he underlined his readiness to add stimulus if BoJ could not reach its 2% inflation target.

Technical: The violent breach of 110 support suggests false upside break and opens a move to retest year to date lows, en-route to the weekly downside objectives of 106.50/105.50. Only over 111.80 eases immediate downside pressure, intraday 107.50 now become resistance.
Retail Sentiment: Bullish
Trading Take-away: Sidelines

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: Pace of recovery in the manufacturing sector diverged in the euro zone and Japan, suggesting that growth will pick up at varying speed in 2Q with downside risks weighing further on the Japanese economy. Final report from euro area affirmed that the sector expanded at a slightly quicker pace with the index ticking up 0.1 point to 51.7 in April. On the contrary, Japan’s index was down by 0.9 point to 48.2 according to a Nikkei report.

Technical: Bears now target weekly symmetry objective at 120.60. Only a close over 126.80 eases immediate downside pressure. Intraday resistance now sited at 123.30.
Retail Sentiment: Bullish
Trading Take-away: Sidelines

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

Fundamental: RBA surprised markets overnight with a 0.25% cut in headline interest rates and reduced its inflation outlook. Prior to the rare cut the AUD strengthened against the USD and regained some ground on the JPY in quiet trading with much of Asia closed for the May Labour Day holiday. Post rate cut the AUD fell hard losing over 1%.

Technical: Price re testing .7550 ahead of pivotal .7470/50 support. While .7550 holds expect a recovery and grind higher to retest .7830 resistance
Retail Sentiment: Bearish
Trading Take-away: Long

USDCAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Fundamental: CAD rose modestly against the USD while a broadly weaker USD was offset by a drop in oil prices. Traders were consolidating positions after a Canadian dollar rally of 17% from a 12-year low in January, aided by rebounding oil prices, fiscal stimulus and stronger-than-expected domestic economic activity. Oil prices tumbled as production in the Middle East neared all-time peaks. US crude ended at $44.78 a barrel.

Technical: With price trading through 1.25, 1.1590 now become intraday resistance, bears now target 1.2350 as the next downside objective. Only a close over 1.2750 eases immediate downside pressure.

Retail Sentiment: Bullish
Trading Take-away: Short

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