It’s been another flat and uninspiring days trade in Asia, with the market clearly in need of a fresh catalyst to inspire, with the highlight on the day moves in the AUD.
On one hand, the Aussie December jobs report saw AUD/USD trade to a session high of 0.7166, where we saw a slight tick lower in the unemployment rate to 5%, courtesy of a lower participation rate at 65.6%. 21,600 net jobs may have been created, although 3,000 full-time jobs were lost, so it was all part-time jobs and therefore the broad quality of today’s data was fairly low. On balance, the fact AUD/USD initially moved a touch higher suggests it was the unemployment rate in isolation that traders and algo’s locked on to. We even saw the swaps market at the time reducing its pricing of a rate cut by year-end at 28.9%.
News that NAB hiked variable mortgage rates by 16bp, saw a flood of offers in the AUD and price has again rejected the 5-day EMA, which, in turn, is heading lower. The market has had another rethink on rates and seen NAB’s move as a catalyst for the RBA to offset this with potentially easier policy, and we can see swaps markets now pricing a 36% chance of a cut now. Long EUR/AUD looks attractive here, with stops through 1.5870, although tonight’s ECB meet is an obvious risk.
AUD/USD is working within a bull flag pattern, which tends to break in the direction of the prior trend, but I am still cautious – perhaps, that is until we see a close through 0.7210. Until then, stochastic momentum and the trend in the 5-day EMA suggests buying AUD/USD here and now is a tough trade.
GBP/CHF longs continue to work well, although I have cut exposures here, which may be premature, I would be looking to reload into 1.2930. The daily chart is showing greater supply coming into play after a solid bull run. Cable longs look more interesting here, with the price having firmly broken through the September downtrend, as well as the December/January bull channel. Watch for a re-test to confirm this is now support.
The view to buying EUR/CHF on a closing break of 1.1350 is still one I am still looking at closely, and perhaps could get a fill in the session ahead. Let’s see what ECB President Draghi conjures up in tonight’s ECB meeting at 23:45aedt. If we look at EUR/USD overnight implied vols, the options markets are hardly expecting fireworks, with the implied move on the session sat at 60-points.
EUR/USD is stuck in this horrific range, which is great if your system has an edge trading sideways moves. However, the fact EUR/USD has not budged off a 1.13- and 1.14-handle for 52 trading sessions (on an intra-day basis) tells a story in itself. I cover this in the video, where I preview tonight’s ECB meet, as well as address what could cause volatility in FX markets to ramp up.