Risk Supported on US-China Headlines, RBA Stands Pat, NZ Jobs Data

USD AND EQUITIES GAIN ON TRADE OPTIMISM, ISM NON-MANUFACTURING PMI IN FOCUS

The dollar traded higher against all the other G10 currencies on Monday and during the Asian morning Tuesday. It gained the most versus NZD, SEK, NOK, and JPY in that order, while the currencies against which it gained the least were CAD, AUD and CHF.

USD/CAD — TECHNICAL OUTLOOK

Although USD/CAD is currently trading slightly below the 200 EMA on the 4-hour chart, it is forming somewhat of a bullish flag pattern, which, according to the TA textbooks tends to break out to the upside. This pattern is supported by a sharp uprise, which was recorded on October 30th. That said, some additional confirmation breaks are needed before we could get comfortable with the upside. Until then, we will remain neutral and continue observing the price action.

RBA HINTS A CUT PAUSE, NEW ZEALAND’S JOBS DATA TO BE RELEASED

Apart from headlines surrounding the US-China sequel, overnight, we also had an RBA policy decision. The Bank decided to stand pat as was widely anticipated, and reiterated that they will continue to monitor developments, including in the labour market, and that they are prepared to ease monetary policy further if needed. However, this time, they added a part saying that the easing in monetary policy since June is supporting employment and income growth, as well as a return of inflation to the medium-term target range. In our view, this is a signal that officials are done cutting rates for now, unless something unexpected happens.

AUD/NZD — TECHNICAL OUTLOOK

In the beginning of the day yesterday, AUD/NZD was on a steep downslide, which looked like it could continue for a bit more. That said, the pair found some decent support slightly above the 1.0700 zone, at the 1.0707 hurdle, from which it rebounded and pushed back to the upside. With such activity, AUD/NZD is now trading above its newly-established short-term tentative upside support line drawn from the low of October 23rd. Even if the pair decides to retrace back down again, as long as it remains above that line, we will stay cautiously bullish, at least for a while more.

AS FOR THE REST OF TODAY’S EVENTS

During the European morning, we get the UK services PMI for October, which is expected to have risen slightly, to 49.7 from 49.5. Later in the day, apart from the US ISM non-manufacturing index for October, we also get final Markit services and composite PMIs for the month, as well as the nation’s trade balance and the JOLTs Job Openings, both for September. We get trade balance data for September from Canada as well. With regards to the energy market, the API (American Petroleum Institute) weekly report on crude oil inventories is coming out.

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