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Plenty of event risk for FX pairs

The AUD made some progress yesterday, as AUD/USD traded as high as 0.964 at the end of the Asian session yesterday.

All trading involves risk. Losses can exceed deposits.

These gains didn’t last long as the pair stalled and later dropped to a low of 0.95 in US trade. We suspect this fall was on the back of some better-than-expected US data lifting the greenback and also positioning ahead of the RBA’s monetary policy meeting minutes.  Following last week’s impressive jobs numbers, the probability for a rate cut has dropped from 54% to around 40%, and these minutes might be a bit more dovish than what the market was priced for.

The underlying fundamentals for the pair to remain weak include a potential winding back of QE weighing on the USD, China uncertainty, struggling commodity prices and RBA easing. The levels to watch for the pair are $0.942 to the downside and $0.967 to the upside. After a brief statement this month, some analysts feel the RBA may be reassessing various metrics.

The single currency has been remarkably resilient, but EUR/USD has struggled to advance past $1.338. This has capped gains in the near term, and we feel a significant catalyst will be needed to nudge through it. With ECB president Mario Draghi on the wires, along with the German ZEW economic sentiment reading, then there is potential for some volatility in the pair. It’s a big day of data in the UK later today, with CPI, PPI and the BoE inflation letter on the wires.

At the same time we have the G8 meetings kicking off, with US building permits and CPI also set to be released. Cable has been trending higher over the past few weeks and any surprises to the upside could push the pair into $1.58. USD/JPY hasn’t done much over the past few sessions and has been relatively sidelined around 94.90. However, we feel it’s only a matter of time before volatility kicks in particularly with the FOMC meeting and BoJ Gov Kuroda on the wires this week. 

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