The US dollar index registered a big gain on Monday, rising to 96.81 from 96.13. A string of weaker-than-expected manufacturing PMIs in the Eurozone led to a plunge in euro, as expectations for further ECB easing rises.
Technically, the EUR/USD has formed a harmonic AB=CD pattern with D point at 1.141 area, and is now entering into its consolidation phase. Immediate support level can be found at 1.126 area (61.8% Fibonacci retracement).
The US ISM manufacturing PMI came slightly above expectation at 51.7 but is still on course for declining from the previous month. The manufacturing sentiment registered its slowest expansion since Sep 2016, as global cyclical downswings continue with escalating trade tariffs. US equities paired some gain from the pre-trading session, as investors took a calm look at the G20 result and assess a weak fundamental prospect.
Today, market focus will shift to the Reserve Bank of Australia’s (RBA) interest rate decision to be announced at 12:30 SGT. It is expected the RBA will cut its policy rate by 25bps to 1.00%, following a 25bps cut last month. The futures market’s probability of the rate cut today stands at 87.1%, a fairly high consensus. AUD/USD has started to decline since yesterday after hitting strong resistance at 0.700-0.703 area, and traded at 0.697 this morning. If the RBA cuts interest rates today, there could be a knee-jerk reaction in Aussie selling and immediate support levels can be found at 0.695 (38.2% retracement) and then 0.693 (50% retracement).
If the RBA holds back on rate cuts in July, there might be one in August as the unemployment rate is climbing and economic outlook is overshadowed by a global slowdown and trade risk.
A post-G20 rally led to a capital flee from haven currencies like Japanese yen and precious metals. Technically, gold price has entered a bear trend as its 10-Day SMA and SuperTrend (10,2) have both flipped down. Momentum indicator DMI has also shown a depleting in buying power. Further consolidation into the US$ 1,376 and then US$ 1,364 is possible down the road.
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