Monthly FX Focus – July 2016

FUNDAMENTAL OUTLOOK

AUD/USD 

AUD/USD trading +2.4% higher in June. The increase in the rate was in part due to a reduced likelihood of a Fed interest rate cut this summer, the RBA leaving rates unchanged and mixed economic data out of both countries. Australian economic numbers were mostly on target or better than expected in June.

The FOMC left the Fed Funds rate unchanged at 0.50% at its latest meeting on June 15th. FOMC member Powell stated on the 29th after the UK referendum that, “The Brexit vote has the potential to create new headwinds for economies around the world, including our own. The risks to the global outlook were somewhat elevated even prior to the referendum, and the vote has introduced new uncertainties.

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NZD/USD

NZD/USD recovered all of its May losses in June, rallying an impressive +5.4 percent in June. The sharp increase in the rate was in part due to risk appetite favouring the Kiwi over the Greenback. New Zealand numbers were mostly better than expected or in line with expectations in June.

Continued U.S. economic weakness and a reduced chance of a summer Fed rate hike make the rate’s outlook higher in all frames.

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EUR/NZD

EUR/NZD fell a whopping -5.3% in June. The decline in the cross was in large part a result of the UK’s decision to leave the European Union, which weighed heavily on all European major currencies.

New Zealand economic data also showed mostly better than expected results in June. We are working with the banks to further develop the stress-testing framework for the New Zealand banking system.” Due to continued pressure on the Eurozone resulting from Brexit, the outlook for the cross is lower in all time frames.

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GBP/AUD

GBP/AUD dropped sharply in June, losing a whopping -10.9% for the month overall. The decline in the cross was in large part due to the results of the UK referendum to leave the European Union. The results showed 51.9% versus 48.1% of UK voters in favour of leaving the European Union, which sent Sterling plunging against all other major currencies. With the exception of three major releases, all significant UK economic releases in June were either in line with expectations or better than expected.

Due to Sterling’s weakness in the wake of the Brexit vote, the outlook on the cross continues to be lower in all time frames.

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AUD/EUR

AUD/EUR reversed direction in June, gaining +3.1% for the month overall. The increase in the cross was in part due to asset flows favouring the Aussie over the Euro in the wake of the Brexit referendum in which the UK opted to leave the EU, and with mixed economic numbers out of both economies.

The ECB left its benchmark Minimum Bid Rate at 0.00% at their latest meeting on June 2nd as widely anticipated. In a speech at the EU Economic Summit on June 29th, President of the European Council Donald Tusk stated that, “We reconfirmed that Britain’s withdrawal from the European Union must be orderly and there will be no negotiations of any kind until the UK formally notifies its intention to withdraw.

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TECHNICAL OUTLOOK

AUD/USD

AUD/USD sparked a rise to 0.7835 by April 20th. After meeting a declining trend line there, the rate fell to 0.7144 on May 23rd, before bouncing to 0.7643, which met the same line. A subsequent dip to 0.7296 was followed by a rise to 0.7545.

Overall, AUD/USD’s near term outlook looks neutral, while its medium term outlook has turned bullish. Also, two recent tests of a long term falling channel line have strengthened its importance

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NZD/USD

NZD/USD rose correctively at 0.7053/54 in April and early May. The rate fell below the intervening neckline low of 0.6796 on May 8th to reach 0.6673 on May 29th. A bounce ensued that peaked at 0.7288 on June 22nd and was followed by a very sharp drop to 0.6241 the next day. The rate has since consolidated between those levels.

Overall, NZD/USD’s outlook has neutralized near term, although its medium term outlook remains bullish.

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EUR/NZD

NZD fell back into a triangular consolidation pattern with support at 1.5768 and resistance at 1.8821 that had a 3,053 pip initial width. That pattern broke down last month when its lower trend line was at 1.6727, sending the cross down to 1.5276 thus far with a 1.3674 target situated below long term support at April 2015’s 1.3979 low.

EUR/NZD’s near and medium term outlooks have turned bearish after it broke down from a triangular consolidation. Although the RSI signals a near term bounce, this pattern break targets 1.3674.

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GBP/AUD

Since peaking at 2.2368 last August, GBP/AUD has been falling overall. When the cross fell below its rising medium term channel’s lower support in February, its drop accelerated to hit 1.8270 in April. It then bounced to 2.0528 before starting a sharp fresh decline that fallen to 1.7120 thus far.

Overall, GBP/AUD’s near and medium term outlooks remain bearish as the cross remains below its 200 day MA and has sustained a downwards break from its medium term rising channel to make fresh near term lows. Nevertheless, the cross’ RSI remains in oversold territory so should be watched closely for signs of bullish divergence that would signal a corrective near term rally.

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AUD/EUR 

AUD/EUR rose correctively from its 0.6023 low made last August in overlapping waves to peak at 0.6958 last December. The cross then declined to 0.6153 in February, rose to 0.6927 in April and fell sharply in late April and early May to consolidate above 0.6386/90. A sharp bounce found support at 0.6801.

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Te’a Truong | Account Manager – Partnerships | OFX

T: +61 2 8667 8062 | F: +61 2 8667 8080 | M: +61 0479 198 345
teatruong@ofx.com | www.ofx.com

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