I continue to feel a bullish bias towards developed markets is warranted. Yesterday’s close at 5543 was the highest close in six years and traders will keen to see a close tonight above the previous cash market high of 5561.1. The 5560 area has been a ceiling on the Australian market since April.
Traders that happy to focus on currencies over a longer term period could look at the monthly chart of NZD/USD. There is a strong double top set-up materialising on the monthly chart; with stochastic’s looking set to head lower. The more short-term daily chart though has already seen a fairly steep move lower since July 10, although is oscillating around the 38.2% retracement of the June rally at 0.8671. Tomorrow the RBNZ meet and I expect the bank to hike rates, but detail that they could pause for a period. The recent softer-than-expected NZ inflation and high NZD could even be a reason why they pause at this meeting, which would cause a fairly aggressive sell-off. I continue to feel that long AUD/NZD trades look compelling.
EUR/USD was the big talking point of trading floors today with the pair breaking through the year’s low pivot of 1.3477. On the weekly chart the EUR/USD has broken below the 2012 uptrend despite a fairly benign US inflation print overnight. Short positions are favoured.
The AUD bears are lining up to short AUD/USD on a break of the June 18 low of 0.9322, however judging by the RSI’s and stochastic’s it looks as though this move may not eventuate in the short-term. In fact, as said in previous reports with the 20-day moving average moving perfectly sideways I would be playing a range of 0.9465 to 0.9327 (using Bollinger Bands). At 11:30am today we get Australian Q2 inflation with economists expecting 3% headline print and 2.7% on the trimmed mean metric (which is metric the RBA look at). The swaps market is pricing in nine basis points of cuts over the coming 12 months, so there is a small directional bias on rates from the market. There is still a view that inflation will gravitate lower over the coming quarters as well.
Facebook has staged a strong rally since April and traders will be eyeing the all-time high of $72.59. Q2 earnings will be in play tonight (post market) and traders expect to see Q2 EPS of 32c on revenue of $2.81 billion. Q2 mobile ad revenue is expected to be around 62% of the total advertising revenue, which would be a three percentage point increase from Q1. There are downside risks as price action would suggest the market is going into the results expecting strong numbers. However it’s worth highlighting FB have beaten adjusted EPS seven of the past eight quarters and beaten revenue all of the last eight quarters.