Adam has put together a great preview for the RBA decision later at 0330 GMT/2230 ET (see: What you need to know ahead of the RBA decision ). If you have not read it, do so.
In that report he talks to the dovishness that seems to be priced in. What technical clues should the market react to on a dovish or not so dovish statement (I don’t expect a hawkish report so there is a limit)?
AUDUSD monthly. 0.7788 is the 200 month MA. The 0.7719 is the low from last week. The 0.7700 is the low from July 2009.
Before looking at the upside levels, let me first explore the downside.
The monthly chart has a longer term level that is “in play”. That level comes from the 200 month MA (green line in the chart above). We are the first day of a new month, so there is a lot of time to go on this one. However, the level is at 0.7788 – not all that far from the current price of 0.7818. So it may prove to be a “line in the sand” to watch on the downside on a more dovish statement/ decision (if they do cut I would expect the lows at 0.7719 to be the level to test initially)..
If the price moves below and stays below the 200 month MA, it should increase downside momentum (and become resistance). Traders will then be looking towards the lows from last week at 0.7730 (from Friday) and 0.7719 (from Thursday). Below those levels, the 0.7700 is the low going back to July of 2009 (see monthly chart above). A move below that opens up the downside even further.
Drilling down to the hourly chart, the price has seen consolidation over the last few trading days and a better bid today. This is likely position squaring after a sharp fall last week, and what was a fairly significant move lower in January (-4.72% decline). That move saw the price extend to 0.7719 – not too far from the 0.7500 level Gov. Stevens said was a more fair price in mid December. Commodity prices are lower this month which justifies the move with Iron Ore prices trading at levels not seen since 2009.
Does Stevens think the 0.7500 is still a neutral level or is it lower now? That might be something the market will like to hear and could sway market sentiment towards that area if the bears take control.
What about the upside?
On the upside, a close level from the hourly chart that balances out the 200 month MA below, is the 100 hour MA (blue line in the chart below). That MA level comes in at the 0.7848 level currently and moving lower. The price did move above this moving average in trading last week (after higher than expected CPI). However, the momentum faded and the price reversed. On a move above the 100 hour MA, the next upside targets come in at the:
- 0.7857 level. This was the low from last Monday’s trading,
- the 50% of the move down form last weeks high at 0.78716
- the 61.89% of the same move down at 0.78716, and
- the 200 hour MA (green line in the chart below) at 07923.
I am not expecting a move toward the 0.8000 level. I don’t see the RBA being that hawkish. So if the momentum is in that direction, look for the sellers to line up (the 200 hour MA will be a key level to eye).
The hourly chart will likely provide the technical targets on the topside on a more hawkish/less dovish report.