• AUD/USD stabilizes around 0.6830 key support as traders seek fresh clues from economic calendar.
  • Fed’s action, trade news entertained sellers the previous day.

AUD/USD remains on a back foot following a nine-day losing streak as it trades near 0.6845 amid early Thursday morning in Asia.

On Wednesday, the Aussie buyers couldn’t cheer the upbeat inflation numbers for a long time as absence of breakthrough from US-China trade talks and the US Federal Reserve’s firm attitude towards future policy actions weighed on prices.

At the end of two-day-long trade negotiations, the US and China could only say that the talks were constructive while promising to meet in September again for further discussion ahead of the deal.

The Fed met market expectations of a 0.25% rate cut but comments from the Chairman Jerome Powell that the present action is not the beginning of an easy monetary policy cycle grabbed major attention to drive the US Dollar (USD) upwards.

Moving on, the Australian economic calendar has few second-tier data like AiG Performance of Manufacturing Index, Commonwealth Bank Manufacturing PMI, HIA New Home Sales and Export/Import Price Indices ahead of diverting market watchers to China’s July month Manufacturing Purchasing Managers’ Index (PMI).

While most of the data from Australia are expected to flash downbeat signs, China’s private manufacturing gauge could improve to 49.6 from 49.4 but still remain in the contraction region by flashing a number below 50.0.

Technical Analysis

Repeated failures to slip beneath 0.6830, near the lows marked yesterday and in June, coupled with oversold conditions of 14-bar relative strength index, favor the pair’s pullback towards late-May lows surrounding 0.6860 and then to July 10 bottom close to 0.6910. Alternatively, a downside break of 0.6830 opens the gate for the pair’s drop to January low around 0.6680.

Turbo-charging the preparations of a no-deal Brexit, the UK Finance Minister Sajid Javid announces £2.1 billion in extra spending, as per The Telegraph.

The news report further claims that the £2.1 billion in extra spending will be on top of an existing £2.1 billion set aside for Brexit. The new money will be funded by dipping into Philip Hammond’s £26.6billion warchest.

The piece also quotes the Chancellor while saying that "We want to get a good deal that abolishes the anti-democratic backstop. But if we can't get a good deal, we'll have to leave without one. This additional £2.1 billion will ensure we are ready to leave on October 31 – deal or no deal."

FX implication

Despite witnessing no immediate impact of the news, the UK lawmakers’ preparedness for a no-deal Brexit is likely to keep weighing on the GBP/USD pair.

  • DJIA, ended down 334 points, or 1.2%, at 26,864.
  • The S&P 500 lost 32 points, or 1.1% to 2,980.
  • The Nasdaq Composite dropped 98 points, or 1.2% to 8,175.

The FOMC today cut fed funds rate 25bps as expected and signalled an earlier end date for its quantitative tightening (August 1). U.S. stocks closed down hard in the red following the Fed announcements, despite an acknowledgement that the US economy was performing, although at risk considering global implications and trade wars. But the fact that there were no clear indications that the Fed was intending to cut again, stocks suffered and gave back speculative gains where the markets had priced in a far more dovish expectation from the Fed.

Consequently, the Dow Jones Industrial Average, DJIA, ended down 334 points, or 1.2%, at 26,864 while the S&P 500 lost 32 points, or 1.1% to 2,980. The Nasdaq Composite dropped 98 points, or 1.2% to 8,175. The lack of commitment drover President Trump to voice his own thoughts on the matter, "As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!" Trump tweeted.

ANZ Bank analyst's comments on the Fed and US data

"While the initial market reaction was muted, the press conference drove much larger moves," analysts at ANZ noted:

"Fed Chair Powell suggested the Fed isn’t in a long cutting cycle and that the cut was aimed at insuring against downside global risks, noting that the outlook for the US economy remains favourable. This suggest the future policy path will very much depend on whether global data is feeding negatively back into the US. So far, the manufacturing sector has shown weakness in line with the global slump, but the much larger services sector is holding up," analysts at ANZ bank explained.

On the data front, the July ADP jobs rose 156k as service jobs rose 147k and goods producing jobs were up 9k. "That was a reasonably strong ADP report, indicating ongoing momentum in the labour market at the start of Q3," the analysts at ANZ argued.

DJIA levels

The DJIA index dropped below the 20-DMA and prospects of the July highs are now on the backburners. The index is now supported at the 50-day moving average meeting a rest spot on 23.6% retracement of the 3rd June low to 12th July, a tight spot which meets the April 23rd and 1st May double-top highs which guards a run to the pivot.

  • The King Dollar holds its Fed-backed strength, dragging NZD/USD to multi-month low.
  • The absence of major positives from home, trade front weighs on the Kiwi.
  • China’s Caixin Manufacturing PMI will be in the spotlight for now.

NZD/USD seesaws near the 6-week low, printed after the previous day’s Fed rate cut, while making the rounds to 0.6560 at the start of Thursday’s Asian session.

Despite registering an initial pullback on the US Federal Reserve’s 0.25% rate cut, the greenback surged across the board as the Chairman Jerome Powell considered the present action as a mid-cycle adjustment while keeping a positive outlook towards the US economy.

The US President Donald Trump didn’t like the central bank’s not so dovish rate cut, as always, but the King Dollar showed little care for it.

On the other hand, the New Zealand (NZD) had ANZ sentiment numbers and doubts over the Shanghai deal, which later on turned true, as weighing on the prices during Wednesday’s Asian session. The US and China shook hands at the end of two-day-long trade negotiations without any major success, except for the talks being “constructive”, and said they will meet again in September.

Given the lack of data at home, Kiwi traders will now keep an eye over China’s Caixin Manufacturing Purchasing Managers’ Index (PMI), expected 49.6 versus 49.4 prior, while also following macro headlines.

Technical Analysis

Unless providing a successful run-up beyond July 10 low of 0.6567, fears of the pair’s dip beneath late-May tops, around 0.6560, can keep being on the card, which in turn divers sellers to the 10-month old ascending support-line, near 0.6510. Meanwhile, an upside break of 0.6567 can have 0.6600 and 0.6630 as follow-on numbers to please buyers.

  • USD/JPY is fading the Fed-inspired spike to 108.86 resistance.
  • Support is seen at 108.61 and 104.41 on the way down.

USD/JPY daily chart

USD/JPY is trading in a range above the 108.50 level and the 50 SMA. The market only had a minor reaction to the 25 bps cut by the Federal Reserve.

USD/JPY 4-hour chart

USD/JPY is trading above its main SMAs, suggesting a bullish bias in the medium term. Bulls need to generate a breakout above 108.86 to reach 109.40 resistance on the way up, according to the Technical Confluences Indicator.

USD/JPY 30-minute chart

The market is currently fading the Fed-inspired spike to 108.86. Support on the way down is seen at 108.61 and 108.41, according to the Technical Confluences Indicator.

Additional key levels

  • Trump weighs in on the Federal Reserve's, (Fed), interest rate decision and is not happy about it.
  • Fed's Powell said he intends to fulfil his four-year term in his presser.

Following today's Federal Reserve meeting, President Donald Trump has argued that the nation needs a more aggressive policy fro the Federal reserve with respect to its recent shift to its monetary accommodation policy, calling for lower rates – which is of no surprise and will have little implication for the economy. Powell expressed his intentions to fulfil his legal for-yea long mandate as Charman of the Federal Reserve and he was quite clear with where the Fed stands on rates.

  • Powell speech: Not likely Fed will return to rate hikes during this business cycle

Trump's tweets:

Market reactions to the Fed today:

  • EUR/USD extends slide below 1.1100 as US Dollar soars during Powell’s press conference

  • Wall Street reverses course on Powell remarks, S&P 500 erases more than 1.5%

  • Gold prices dump over 1% on the Fed's ‘mid-cycle adjustment’ and 25 basis point rate cut

  • EUR/USD drops sharply to fresh 2019 lows following the cut from the Federal Reserve.
  • The level to beat for bears are seen at the 1.1064, 1.1030 and 1.007 levels.

EUR/USD daily chart

EUR/USD is in a bear trend below its main daily simple moving averages (DSMAs). The Federal Reserve cut 25 bps as market participants widely expected it. The market fell sharply on the news.

EUR/USD 4-hour chart

EUR/USD is trading below its major SMAs, suggesting a bearish bias in the medium term. The market reached 1.1060, its lowest point in 2019. Sellers want to break below this level to travel south towards 1.1030 and 1.1007, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

EUR/USD is steeply down below its SMAs, suggesting bearish momentum in the short term. Immediate resistances are located at 1.1080, 1.1100 and 1.1117 according to the Technical Confluences Indicator.

Additional key levels

  • WTI bulls st back on a stronger Dollar following Fed cut, less dovish than expected outcome.
  • Bulls capped at 50-week moving average and Fibo resistance.

The price of oil dropped in the aftermath of the Federal Reserve event while the Greenback rallied to annual fresh highs on the 98 handle in the DXT meeting a high of 98.68. West Texas Intermediate crude touched a low of 57.90, down -0.50% on the session form a high of $58.79.

However, oil futures ended higher on Wednesday, with U.S. prices up a fifth consecutive session on the back of the government data showing that domestic crude inventories fell for a seventh consecutive week. The Energy Information Administration on Wednesday reported that U.S. crude supplies declined by 8.5 million barrels for the week ended July 26.

Meanwhile, the Federal Reserve threw a life-line for the Dollar and the main takeaway is that the Fed is watching for development on an economic front, both globally and domestically, mindful of soft US inflation running below target.

Federal Reserve outcome

  • The interest rate on excess reserves cut to 2.10% from 2.35%.
  • FOMC cuts benchmark rate by 25 basis points (bps); target range stands at 2.00% – 2.25%.
  • To conclude b/sheet reduction in august, 2-months earlier than previously indicated.
  • To roll over at auction all principal payments from holdings of treasury securities, reinvest all principal payments from agency debt and agency MBS received each month.
  • Principal payments from agency debt and agency mortgage-backed securities (MBS) up to $20 bln/month will be reinvested in treasury securities to roughly match maturity composition of outstanding Treasury securities.
  • Principal payments from agency debt and agency mortgage-backed securities in excess of $20 bln will continue to be reinvested in mortgage-backed securities.
  • Rate cut supports the committee's view that sustained economic expansion, strong labour market and near-target inflation. are most likely outcomes but uncertainties remain.
  • As it contemplates the future path of fed funds rate it will continue to monitor incoming info, act as appropriate to sustain expansion.
  • Household spending growth has picked up, but business fixed investment growth has been soft and inflation compensation measures remain low.

WTI levels

Technically, now supported at the 20-week moving average, the price took out the 200-day moving average earlier in the week and shot higher to pierce the 61.8% Fibo of the July swing highs and lows taking on the 58 handle momentarily, scoring as high as 58.79, meeting the 50-week moving average. On a continuation of the upside, oil can rally towards the 60 handle and double top in the 60.80s. On the downside, a break of 57.90 and the 50% Fibo opens the base of this wee's stick down at 55.84 and the rising support line of the channel. A break there opens 54.60, (a prior 61.8% Fibo.).