• US will extend Iran nuclear waivers for 90 days.
  • Risk currencies and the price of oil hang in the balance of US/Iran relations.

The White House National Security Adviser Bolton has made a statement saying that the US will extend Iran nuclear waivers for 90 days. This will allow Russia, China and European countries to continue civilian nuclear cooperation with Iran. The waivers allow work at Iran’s Bushehr nuclear plant, the Fordow enrichment facility, the Arak nuclear complex and the Tehran Research Reactor.

US President Donald Trump sided with Treasury Secretary Steven Mnuchin last week who argued for renewing the waivers besides objections by Secretary of State Mike Pompeo and national security adviser John Bolton. Mnuchin had argued to Trump that if the sanctions were not again waived as required by law by Aug. 1, the United States would have to sanction Russian, Chinese and European firms that are involved in projects inside Iran that were established as part of the 2015 nuclear deal. “These waivers can be revoked at any time, as developments with Iran warrant. But because of the Treasury Department’s legitimate concerns, we’ve decided to extend them for now,” an official said.

Earlier, Democratic senator Feinstein says sanctioning Iran's Zarif is a mistake following the U.S. Treasury Department imposing sanctions on the Iranian Foreign Minister Zarif. Zarif said that the U.S. sanctioned him because he is a threat to US agenda.

Market implications

Markets have been on edge ever since the U.S.-Iranian conflict gave rise to the prospects of a full-on war. since May, there have been several attacks on oil tankers in the Gulf, including Iran’s downing of a U.S. surveillance drone, as well as a plan for U.S. airstrikes on Iran last month that was abandoned at the last minute by Trump, claiming he wouldn't want so many civilian casualties. This all gave rise to a bid in the safe-haven currencies and the price of oil.

  • EUR/AUD is en route to the downside correcting latest daily rally.
  • EUR/AUD targets a 50% retracement on RBA ECB divergence and the prospect of a trade truce.

EUR/AUD dropped from the July highs as markets start to factor on easing from the European Central Bank. The Australian and Chinese data managed to keep within relatively acceptable levels where markets would not go out of the way punch the Aussie ahead of the Federal Reserve Interest rate decision overnight.

EUR/AUD's fate depends on the race to the bottom between the ECB and RBA

Trimmed mean inflation for Q2 printed in line with expectations (market’s and the RBA’s), while headline inflation was slightly stronger than the market expected. Governor Lowe’s speech last week suggested the RBA is prepared to watch the data for a period to determine whether “we’re going to need further stimulus”. For the RBA, it likely gives more time before action is required and a move next week now seems materially less than a 50% probability.

"The Q1 CPI data were in line with the RBA’s forecasts, so there is no smoking gun here," analysts at ANZ bank argued. "The RBA’s forecasts to be published in the Statement on Monetary Policy next week will assume two further rate cuts (reflecting current market pricing)." However, the analysts argued that it is very difficult to see how the Bank will achieve its target of 4.5% unemployment in a timely manner without further easing. "Consequently, we continue to expect another cut in the next few months, the exact timing of which we will firm up after next week’s RBA statement."

Meanwhile, when looking to the European Central Bank, the latest flurry of EZ data will be important for Draghi & Co. given how fragile the economy is and the downside 0.1% miss in core CPI and the ECB's focus on underlying inflation and inflation expectations, it will help to make the case clearer for an additional round of stimulus in September. We also had Q2 GDP data for Spain, Italy and the Eurozone, as well as July inflation for France, Italy, and the Eurozone. All in all the data was a little underwhelming. EZ GDP came in line with consensus at 0.2% q/q although though headline CPI met expectations at 1.1% y/y.

Trade talks to prop up the Aussie

All in all, EUR/AUD is not going to find buyers at this rate, not while EUR/USD's ship is going down an in an era of the carry. If the RBA holds off from cutting rates next week and should there be any prospects at all of a trade deal between China and the US, then commodities should continue to find support, (AUD trades as a proxy tot he commodity complex).

"The US and China ended trade talks in Shanghai without any meaningful progress, highlighting the reality that a deal is far from being reached. Both parties agreed to meet again in September," analysts at ANZ Bank noted.

Some latest news has crossed the wires from Xinhua arguing that the U.S. can push forward trade talks on the basis of equality. Earlier, we had Hu Xijin comment that the next round of China-US high-level trade consultations will be held in Sept and, "based on what I know, the two sides will hold intensive working-level consultations in Aug. This arrangement shows Wed's talks were not bad. It is not accurate to say the talks ended up in a bad vibe."

EUR/AUD levels

Technically, the path of least resistance is to the downside in the short-term although the pair is changing hands in a broader bull trend which started back in 2013 following the RBA taking action against a strong Aussie (over 1.05 to the Dollar) by cutting interest rates. However, the RBA will be reluctant to cut rates too soon and run out of room to do so again should there be some economic shock down the line. This gives rise to the case for the downside in EUR/AUD for the near term and 1.6080 meets a long term trendline as well as a 50% Fibo retracement of the latest rally in July. A beka there opens the case for a reversal targetting 1.5980 and then the 200-day moving average around the 1.5950/60s.

  • GBP/USD falls short of carrying the previous pullback forward as key short-term MAs limit the upside.
  • Bears await a break of 1.2100 to revisit 2017 low.

Despite repeated failures to slip beneath 1.2100, GBP/USD remains under 50-hour moving average (HMA) as it makes the rounds to 1.2156 during early Thursday.

While sustained trading below the key short-term moving average (MA) portrays the pair’s weakness, 1.2135 and latest low surrounding 1.2120 can offer intermediate halts prior to flashing 1.2100 on the chart.

In a case bears dominate past-1.2100, the year 2017 low of 1.1987 could be on their radar.

Alternatively, the pair’s break of 1.2171 HMA figure can trigger its recovery to 23.6% Fibonacci retracement level of .12224 whereas 1.2250 and 100-HMA level of 1.2268 can please buyers then after.

GBP/USD hourly chart

Trend: Bearish

  • Gold sellers await fresh clues after the price slump, backed mainly by the Fed.
  • A busy day as per the economic calendar can keep entertaining traders.

Having slipped to the two-week low, Gold prices recover to $1415.20 during Thursday’s Asian session.

The yellow metal earlier slumped after the US Federal Reserve lured greenback buyers, despite announcing a 0.25% rate cut, as comments from the central bank Chief turned down the forecast of the beginning of the Fed’s easy money cycle.

Manufacturing activity contraction in China, as indicated by the official Manufacturing Purchasing Manager Index (PMI), and the absence of breakthrough after Shanghai’s trade talks with the US could also be considered negatives for the yellow metal as the dragon nation is one of the top gold consumers.

On early Thursday, the quote bounced off 21-day exponential moving average (EMA) after the US announced sanctions on Iran’s Foreign Minister Mohammad Javad Zarif. Also supporting the pullback is the US President Donald Trump’s criticism of the Fed’s monetary policy.

Traders will now look forward to a busy day that starts with China’s Caixin Manufacturing PMI and has Bank of England’s (BOE) monetary policy meeting, coupled with few second-tier data from the US, in the kitty.

Technical Analysis

While 21-day EMA near $1413 acts as immediate support, sellers will wait for a sustained downpour beneath $1382, comprising multiple bottoms marked in late-June and early-July, to aim for 100-day EMA level of $1354. On the contrary, $1432 and $1438 can entertain short-term buyers prior to challenging them with the previous month’s top of $1452.71.

  • AUD/JPY follows a bearish technical pattern below the key moving average.
  • Oversold RSI conditions around the channel’s support can trigger pair’s pullback.

A short-term falling trend-channel below 4H 200MA portrays the AUD/JPY pair’s weakness as it trades near 74.43 during the early Asian session on Thursday.

However, oversold conditions of 14-bar relative strength index (RSI) around the channel support favor the odds of a pullback to 74.70 whereas 61.8% Fibonacci retracement of June month upside and channel-resistance, at 74.82 and 74.88 respectively, can question further advances.

Should buyers manage to cross 74.88, 50% Fibonacci retracement level of 75.10 can offer an intermediate halt during the run-up to 200-bar moving average on the 4-hour chart (4H 200MA) near 75.34.

Meanwhile, pair’s slip beneath 74.33 channel support could highlight 74.10 and June month low close to 73.90 for sellers.

AUD/JPY 4-hour chart

Trend: Bearish