AUD gains on inflation, BoE minutes in focus

Market Brief

The Australian CPI accelerated at the slower pace of 0.5% in the second quarter (vs. 0.7% exp.), the CPI y/y advanced to 3.0% as expected. AUD/USD cleared resistance pre- 0.9400 (21-dma) and rallied to 0.9439 on stops. Technicals signal a short-term bullish reversal for a daily close above 0.9445 (MACD pivot). Support is seen at 21-dma (0.9400), while option related offers abound below this level. AUD/NZD rallied to 1.0877, offers pre-200-dma (1.0879) capped the upside. The bias is clearly positive. The next resistances stand at 1.0911 (Fibonacci 61.8% on Nov’13 – Jan’14 drop), then 1.1040 (Fibonacci 50.0%).

NZD/USD remains well supported above the 50-dma before RBNZ decision. The RBNZ is expected to hike its OCR by an additional 25 basis points. The rate hike widely priced-in, the expectations on less hawkish statement keep the upside limited.

The US inflation figures generated mixed market reaction in New York yesterday. Despite soft CPI reading in June, the USD came sharply in demand against EUR and CHF. EUR/USD broke the former year low at 1.3477, and immediately hit 1.3459. The pair consolidated losses at the tight range of 1.3458/71 in Asia. The bias is negative with decent option barriers trailing below 1.3480 for today expiry. The critical support now stands at the distant 1.3296 (Nov 7th, 2013 low). USD/CHF rallied to 0.9027 (highest since June 5th), the next key level is 0.9037 (June 5th high), if broken should open the way to 0.9156 (January high & May-July uptrend top). EUR/CHF hovers around its 21-dma (1.21500), lower EUR/USD should keep EUR/CHF well bid given the significant negative correlation. The 40-day trailing correlation currently stands at -43%.

The Cable steadily grinds lower. After hitting 1.7040 post-US CPI yesterday, the pair is offered pre-1.7100/05 (21-dma). The BoE minutes are in focus today, the dove-hawk balance in the heart of the MPC will be closely monitored. GBP/USD trades comfortable in the mid-range of year-to-date uptrend channel (1.6883-1.7356).

USD/CAD remains stuck in between 1.0697/1.0765 (21-dma/Mar-Jun declining triangle top). The bullish momentum slowly fades while traders remain reluctant on long CAD positions before retail sales data; expectations are soft. Any negative surprise should lead to a breakout above the triangle top, placing 1.0794/1.0825 (50/200 dma) at risk.

Today, the BoE releases July meeting minutes. The economic calendar: French Business Survey Overall Demand, Production Outlook, Manufacturing and Business Confidence for July, UK June BBA Loans for House Purchase, UK July CPI Reported Sales, US July 18th MBA Mortgage Applications,, Canadian May Retail Sales m/m & y/y, Euro-zone July (Prelim) Consumer Confidence.