This morning we received the Australian unemployment number, which came out the same as expected. During the European morning, once again we will have UK coming out with another important economic data set. This time the country will produce its retail sales numbers, both headline and core. Speaking about politics, the new president of the European Commission was elected. For the first time in history, the top seat went to a female candidate.
This morning we received the Australian unemployment number, which came out the same as expected. The unemployment rate was the same as previous, at 5.2%. It held steady for the third month in a row, even though the figure had risen from the February low, at 4.9%. That said, the current number is still near the 9-year lows, which is still seen as a positive thing. But unlike the unemployment rate, the employment change number had fallen even further, not only below the previous, but also below expectation. The consensus was for the number to come out at +9.1K, but that slid even more, showing up at +0.5K, which is way below the previous +42.3K for the month of May. Last time the number was that close to negative territory was in February, which was +4.6K. The last time the figure was below zero, was in July. The full employment change number for the month of June was much better than the previous, it came out at +21.1, whereas the month before that was at +2.4K only. This is a good positive jump, given that for last two months the data was quite disappointing.
Initially, we saw AUD selling off, but the move lower was short-lived and the Australian dollar accelerated straight after that. We believe that if there won’t be any news, for now, surrounding the US Trade War with China, or the US tensions with Iran, AUD might hold on to its gains, or even drift a bit higher against some of its major counterparts.
The RBA is monitoring the labour market carefully, in order to keep wage growth at necessary levels. In the minutes, released earlier this week, the Bank mentioned that the RBA will adjust its policy “if needed” to better support the economy.
During the European morning, once again we will have UK coming out with another important economic data set. This time the country will produce its retail sales numbers, both headline and core. The headline MoM and YoY figures are believed to have improved from their previous ones. The MoM is forecasted to have risen from -0.5% to -0.3% and the YoY number is expected to have grown from +2.3% to +2.6%. Even though those are potential good figures, still, the March numbers were almost three times higher than the current expectations. Even if the data comes out in line with forecasts, or slightly better, we doubt that it will have a significant effect on the British pound. GBP could remain vulnerable to the news regarding the UK politics, together with Brexit related issues.
Speaking about politics, the new president of the European Commission was elected. For the first time in history, the top seat went to a female candidate. Ursula von der Leyen, the former German defence minister, will now have the job to at least try and fulfil her promises, among which are taxes, climate change and migration. As the first female EU chief executive, she and her team will have to find a way how to unite the European leaders again, as it is no secret that rising protectionism among individual states is damaging the European Union as a whole. It is clear that economic and social situations in individual European states are different. Inequality and the wish to fight for a better standard of life is fuelling protectionism and the rise of the rightist parties in some member states.
Ursula van der Leyen has a plan to give the EU Parliament the right to propose legislation, because at this time, the institution can only vote on the proposals from individual states and the Commission. In addition to that, van der Leyen will try to put more emphasis on problems regarding climate change. Also, she wants to create an EU budget, or a scheme, in order to protect bank deposits in EU countries. Another proposal is a new unemployment and minimum wage scheme, which should be implemented across all EU states. It might be difficult task to do in real life. That said, one member state seems to be showing its support on the proposed social and economic plans of van der Leyen, and that is France.
Another important news piece that hit the tabloids, was the resignation of the IMF chief, Christine Lagarde. This, of course, is due to the future nomination of her as the next President of the European Central Bank. After notifying of her resignation, she said she will leave on September 12th. Her term as the chief of the IMF was scheduled to end in 2021. As it is known, in the beginning, Christine Lagarde was not so keen on the idea of becoming the head of the ECB.
After the release of the Australian employment data, which came out this morning, AUD jumped against most of its major counterparts, and the Canadian dollar was no exception. After yesterday’s Canadian CPIs, CAD remained side-lined, which helped AUD/CAD to push higher this morning. From the technical side, we can see that the pair is now breaking its medium-term downside resistance line taken from the high of April 17th. This could finally be that signal, which could allow AUD/CAD to drift further north. That said, given that the rate is still below the 200 EMA and the key barrier at 0.9203, we will remain cautious and wait for a clear break above those two obstacles, before examining further upside. This is why we will take cautiously-bullish approach for now.
A strong break above the 0.9203 barrier, could send the rate higher, potentially bypassing the 0.9229 hurdle and targeting the 0.9254 zone, marked by the high of June 11th. The pair might stall there for a bit, or even correct back down slightly. But if the bulls are still feeling comfortable and AUD/CAD remains above the aforementioned downside line, we will continue aiming higher. Another strong move up may force the 0.9254 area to surrender to the bulls. After that, they might lift the rate to the 0.9277 level, marked near the lows of May 24th and June 7th.
On the other hand, a reversal back down below the above-mentioned downside line, could spook the buyers from the game, especially if the rate falls below the 0.9140 hurdle, marked by yesterday’s low. This is when we will examine again the 0.9105 obstacle, a break of which could clear the path to the 0.9073 mark, which is the lowest point of July, so far.
GBP/AUD continues to trade below a short-term downside resistance line taken from the high of June 25th. After finding good support near 1.7627 this week, the pair rebounded and tried to recover some of its losses, but eventually it got held near the 21 EMA. The rate slid back down again and is now testing the area around the 1.7672 hurdle, which we will keep a close eye on today. Given that GBP/AUD failed to move further north, there is a possibility for some further declines in the short run, hence why we will stay somewhat bearish for now.
A drop below the above-mentioned hurdle, at 1.7672, could open the door for a further slide towards the 1.7627 zone. That zone marks the lowest point of this week, which may help stall the rate initially. But if the bears are still feeling more comfortable, a break of the 1.7627 area would confirm a forthcoming lower low and could send the pair to the 1.7559 level, marked by the low of December 19th, 2018.
On the upside, in order to shift our views to some higher areas, we will wait for a break of the aforementioned downside line and a push above the 1.7860 barrier, marked near the lows of July 3rd and 5th. This is when we will aim for the 1.7920 obstacle, a break of which could lift the rate to the psychological 1.8000 level. That level was last time tested on July 11th.
in the US, the Philly Fed manufacturing index for July is anticipated to have risen to 5.0 from 0.3.
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