Daily Trade Recommendation

The RBA rate statement has prompted AUD rally. This may provide AUD selling opportunities against strong currencies like the USD and GBP. Caution is advised on this trade as it's difficult to say how long this AUD rally will last. We look for key technical levels to assess price action for a potential entry. The conviction on this trade is 6/10.

Current Sentiment:

Yesterday's NY session saw the dollar index rally on the back of positive ISM Manufacturing PMI. Dollar-yen hit a 12-year high.

The Asian session saw the interest rate decision from the RBA. The overnight cash rate remained on hold at 2.00%. The statement lacked any decisive comments about the need for further easing which saw AUD rally, with Aussie spiking 60 pips in the first 30 minutes. The RBA sees inflation within target in the next 24 months:"...inflation is forecast to remain consistent with the target over the next one to two years," The statement has caused the market to scale back any likelihood of a rate cut again this year.

Fundamentals:

The USD remains the strongest currency in the longer term, and the short-term sentiment now matches this bullishness. The recent CPI reading has reaffirmed USD strength amid speculation of a rate hike by September. This week's NFP will be vitally important.

The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. If Greece fails to make any of their imminent repayments, the euro will be pressured further.

GBP is looking at a rate hike in the next 12 months. Yesterday's weaker Manufacturing PMI has caused bearish sentiment on GBP.

AUD changed to a downward fundamental bias after the poor Capex data. This may weigh on the upcoming GDP reading. Low commodity prices and a slowdown in China has put bearish pressure on the AUD, however the recent RBA statement did not include any specific mention of further cuts and stated that inflation is expected to remain within target. This has provided bullish sentiment for the AUD.

NZD has a chance of decreasing interest rates next week. The Overnight Index Swap market is pricing a 51% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market.

CAD remains on the weaker side of neutral. GDP last Friday was weak, prior to that CPI and Retail Sales were also weak. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is major uncertainty in the markets.

CHF is fundamentally a weaker currency given the SNB's negative interest rates. However it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.

Technicals:

We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:

Today we have Construction PMI from the UK and GDT Global Dairy Price Index from New Zealand.