Article by ForexTime

Economic data on Monday is extremely low in volume and releases will likely have an extremely muted response, while attention continues to be focused on the very unfortunate tragedy that occurred in Eastern Europe last Thursday evening.

If market volatility is going to resume as the week develops, investors will likely be closely watching Reserve Bank of Australia (RBA) Governor, Steven’s speech in Sydney on Tuesday morning. The Australian Central Bank have spoken negatively about the Australian economic prospects for nearly three months, but investors have remain undeterred from purchasing the Australian currency. The RBA have made a variety of dovish statements during this period including, stating that the Australian currency is valued historically high, alongside a more recent statement that domestic consumer confidence has noticeably declined. When Steven’s appeared at a public speaking event on the 3^rd of July, he explicitly stated that investors were underestimating a significant fall in the Australian currency. In the 48 hours following his comments, the AUDUSD dropped nearly 170 pips.

Potential AUDUSD volatility will not necessarily conclude following Steven’s speech, with the latest Australian CPI (inflation) announced on Wednesday morning. When the RBA first transitioned towards displaying a dovish tone around May time, the Central Bank announced that the Australian economy is set to enter a period of weaker economic growth, alongside lower inflation levels. Wednesday is the first Australian CPI release since the RBA’s comments and the CPI could provide validity to the RBA’s prior warnings. If the AUDUSD moves in a bearish direction over the next couple of days, AUDUSD support levels are located around 0.9361, 0.9329 and 0.9265. A hypothetical move towards the latter support level would represent the AUDUSD’s lowest valuation in nearly two months.

The NZDUSD should also be in for movement this week. Last week, the NZDUSD dropped around 130 pips after the latest New Zealand CPI fell below expectations and raised doubts regarding whether the Reserve Bank of New Zealand (RBNZ) would hike interest rates for the fourth consecutive month in July. The latest RBNZ interest rate decision will be announced this Wednesday. According to Bloomberg, expectations for a RBNZ interest rate increase have reduced from 93% ahead of last Tuesday’s CPI release, to 77% a few hours later. If the RBNZ do surprise and refrain from raising interest rates this month, bearish momentum in the NZDUSD will be sudden, with the 0.8655, 0.8638 and 0.8597 support levels likely on alert.

As long as the RBNZ continue to raise interest rates this Wednesday (which was hinted at the last RBNZ policy meeting) bullish movement in the NZDUSD will likely see moves towards the 0.8712 and 0.8747 resistance areas. There may also be an opportunity for the AUDNZD to move bearishly towards the 1.0735, 1.0701 and 1.0670 support levels.

As always, attention will also be on the UK economy and the resilience the GBPUSD bulls are showing is commendable. Just when it appeared that bullish momentum in the GBPUSD was slowing down, a 1.7189 yearly high was recorded after UK CPI surprisingly moved within .1% of the Bank of England’s (BoE) 2% CPI target to consider an interest rate increase. Although this pair has now settled down to around 1.7085, there is a high quantity of UK data released this week and movement in the GBPUSD is likely. Economic releases from the United Kingdom to keep an eye out for will include, CBI Business Optimism on Tuesday, the BoE minutes on Wednesday, Retail Sales on Thursday and UK GDP on Friday.

Although all of the UK economic releases have the potential to create volatility, the BoE Minutes and UK GDP are the most likely to encourage GBP moves. In reference to the BoE Minutes, onlookers will be looking for any signs of disagreements within the Monetary Policy Committee (MPC) regarding opinions on when the BoE will increase rates. If any of the 9 members of the MPC voted for a BoE interest rate increase last week, bullish movement for the GBP will be instant. At the same time, if the MPC continued to vote 9-0 in favor against an interest rate increase and the UK GDP doesn’t promote a bullish response, downside moves in the GBPUSD might see the 1.7038 and 1.6984 support levels come in handy.

However as mentioned above, the GBPUSD bulls resilience is proving commendable and they are refusing to surrender without a fight. Current GBPUSD resistance levels can be found at 1.7144, 1.7164 and last week’s yearly high, 1.7189. Similarly, if the GBP bulls receive a boost, downside moves are likely in the EURGBP. Last week, the EURGBP recorded a new two-year low and if bearish movement restarts in the EURGBP, support can be found at 0.7886, 0.7854 and 0.7804.

Finally, the week will draw to a conclusion with the latest Japanese CPI announced in the early hours of Friday morning. For the past two months, Japanese CPI has been registered at multi-year highs, after a Japanese sales tax implemented in April encouraged fluctuations with economic data. If there are any signs of Japanese inflation levels falling below the BoJ’s 2% inflation target, do not rule out the possibility of speculation emerging that the BoJ will need to implement further stimulus to the Japanese economy later this year. USDJPY resistance levels can be found at 101.404, 101.620 and 101.881.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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Article by ForexTime

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