Aussie forms head and shoulders ahead of RBA rate decision
The Australian dollar rose as investors waited for the latest interest rate decision by the Reserve Bank of Australia (RBA) that will come out tomorrow. The bank is expected to leave interest rates unchanged and possibly provide guidance on its quantitative easing. In a recent interview, the RBA governor said that the bank will likely make its final call on its pandemic response measures in the July meeting. The meeting comes at a time when the country is seeing new clusters of coronavirus. To prevent it from spreading, authorities have added some restrictions in Victoria. Earlier today, data by China Logistics showed that the manufacturing PMI declined from 51.1 to April to 51.0 in May.
The Japanese yen strengthened slightly against the US dollar after mixed data from Japan. According to the country’s statistics agency, retail sales rose by 12.0% on a year-on-year basis, up from the previous 5.2%. This growth was slower than the median estimate of 15.3%. Further data showed that industrial production rose from 1.7% in May to 2.5% in April while housing starts increased from 1.5% to 7.1%. Housing confidence declined from 34.7 to 34.1. These numbers show that the Japanese economy is experiencing some growth even as the government implements a state of emergency and manufacturers struggle with chip shortages.
The euro was little changed against the US dollar as US markets closed for the Memorial weekend. The pair also reacted to the relatively weak Italian and Spanish inflation data. The numbers revealed that the headline consumer price index in Italy rose from 2.2% to 2.7% year on year. This was primarily because prices declined sharply in May 2020 amid the pandemic. Indeed, the CPI fell from 1.2% to 0.4% on a MoM basis. The same trend was seen in Italy, where the CPI dropped from 0.4% to 0.0% on a MoM basis and rose from 1.1% to 1.3% on a year-on-year basis.
The EURUSD pair is in a tight range after the relatively weak consumer inflation data from Spain and Italy. The pair is trading at 1.2190, which is slightly above last week’s low of 1.2135. On the four-hour chart, the pair is along the 25-day moving average. It also seems to be forming an inverted head and shoulders pattern while the Awesome Oscillator has moved below the neutral line. The RSI is also at the neutral level of 48. Therefore, while the outlook is neutral, the pair will likely break out higher during the week.
The AUDUSD pair rose to an intraday high of 0.7735, which was slightly above last week’s low of 0.7678. On the four-hour chart, the price has moved above the 38.2% Fibonacci retracement level. It has also risen above the 25-day moving average while the Relative Strength Index (RSI) has risen to 50. The pair also seems to be forming a head and shoulders pattern. Therefore, the overall outlook is relatively bearish.
The EURGBP was little changed today. It is trading at 0.8597, which is below the intraday high of 0.8612. On the four-hour chart, the pair is slightly above the 50% Fibonacci retracement level. It is also forming a bearish flag pattern and is slightly below the 25-day moving average. It is also slightly above the neckline of the double top at 0.8590. Therefore, the pair may break out lower, with the next key target being at 0.8575.