Morning Technical Report

Medium Term Strategy: Forex Pair of the day

The pair has broken below the 0.7520 key support (horizontal level and year-to-date low). In addition, the 20 and 50-days moving averages crossed downward and the RSI below its neutrality area. As a consequence, further weakness is expected with a first target at 0.7270 (horizontal support and previous overlap) and a second one set at 0.6980 (horizontal support). Only a break above 0.7805 would turn the outlook to bullish and favour a recovery towards 0.8165 (May top).

Market Comment

The S&P/ASX 200 index increased 1.94% or 106.425pts to 5581.42 (day range: 5586.2 – 5484.7) on Tuesday. The index is above its 20d MA (@ 5556) and below its 50d MA (@ 5639). 41% of the index constituents are above their 20D MA (vs 24% the previous session) and 29% of the shares are above their 50D MA (vs 15%).

Reserve Bank of Australia kept its key rate at 2%, as expected. The Bank said: “Overall, the economy is likely to be operating with a degree of spare capacity for some time yet. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate. (…) In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. (…) The Australian dollar has declined noticeably against a rising US dollar over the past year, though less s o against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices. The Board today judged that leaving the cash rate unchanged was appropriate at this meeting.”

Australia: The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) fell 1.4 points MoM to 46.4 in June. Key points included: “The sub-indexes for new orders (down 2.4 points to 45.6), employment (down 2.6 points to 45.5), and construction activity (down 1.3 points to 48.6) all contracted at steeper rates in June. (…) In residential construction, apartment building activity lifted solidly to a three-month high in June (up 6.0 points to 53.0), while house building activity also expanded in line with the sub-sector’s recent strength in new orders (up 3.4 points to 51.7). (…) Engineering construction activity continued to contract, and at a st eeper rate than in May (down 3.3 points to 45.2), while commercial construction recorded an eighth month in contraction (down 0.3 points to 48.9).”

Australia: The ANZ Roy Morgan Consumer Confidence Index declined to 111.0 in the week ended July 5 from 116.3 in the previous week.

Foreign Exchange

The euro was lower against its major pairs. In Europe, German industrial production was flat in May after a 0.6% increase the month before (revised from +0.9%). Economists expected a 0.1% rise. UK industrial production was up by 0.4% in May (-0.2% anticipated) after a 0.3% rise a month earlier.

The Australian dollar was under pressure against its major Pairs.