Economic highlights for today (2/6/2018)

During the European morning, we get Germany’s industrial orders for December and later on New Zealand’smilk auction data, US and Canada’s Trade balance for December, as well as Canada’s Ivey PMI for January. Last but not least we get New Zealand’sUnemployment rate which could move the NZD as the release is one day ahead of RBNZ’s interest rate decision.

US Dollar strengthens as US Stock market plunges

Dow Jones erased all of its 2018 gains in one day as the US stock market plunged in a volatile trading on Monday. The reasons behind the sell-off could be spotted amid concerns for rising bond yields and higher inflation which could have prompted worries of a faster rate hike pace. Friday’s strong US employment report strengthened the argument for such a case. The US Dollar gained on buying interest, as investors sought it’s relative safety according to various media reports. It would be indicative that the USD outperformed most of its rivals but the JPY. Overall we expect the USD to continue to strengthen, however the gains could be somewhat limited.

USD/JPY dropped yesterday breaking the 109.20 support level. The drop could be interpreted as JPY outperforming the USD as a safe haven. However we would not hurry to call for a further sell off, as the Relative Strength Index has approached 30 and in the hourly chart, volatility is decreasing. We could see the pair stabilizing during the day and even experience some bullish pressures in a possible correction phase. Should the pair find new selling orders we could see it breaking the 108.30 support level and aiming for the 106.95 support area. On the other hand should it find fresh buying orders we could see it breaking the 109.20 resistance line and aim for the 111.05 resistance zone.

RBA remains on hold

RBA decided to remain on hold as it was widely expected by the market and kept its interest rate at +1.50%. The accompanying statement had an upbeat tone with comments for inflation being likely to remain low for some time, a gradual pick up of inflation is expected and it should reach a bit above +2.0% in 2018. The statement also spotted as continuing source of uncertainty the outlook for household consumption. Specifically, it mentioned that household incomes are growing slowly and debt levels are high. AUD/USD was practically not influenced by the RBA decision indicative of the neutral effect as the market was expecting the outcome.

AUD/USD began to trade yesterday in a sideways manner with a bullish tone, however dropped heavily as the later on during the US session breaking the 0.790 support level. The pair could continue to trade with some bearish tone, however we see the case for the pair to stabilize somewhat later on as the Relative strength index is already below 30, possibly signaling an overcrowded short position. Should the bears continue to have the upper hand we could see it breaking the 0.7782 support level and aim for the 0.7683 support barrier. On the other hand should the bulls take the driver’s seat, we could see them drive the pair beyond the 0.7900 resistance level, aiming for the 0.8000 resistance hurdle.