The USD last week lost
ground across the board following the soft US CPI report as the market priced back in two rate
cuts by the end of the year. The moves were reversed soon after though as we
got a bit more hawkish than expected FOMC decision where the dot plot showed that the Fed expected just one cut for
this year despite the soft US CPI report.

Fed Chair Powell backpedalled on the projections nonetheless
making them a bit less worrying as the central bank remains very data
dependent. The rally in the US Dollar eventually picked up steam as the risk
sentiment turned more cautious.

The AUD, on the other hand,
got pressured mainly because of the risk-off sentiment and the US Dollar
strength. This week, we have the RBA rate decision where the central bank is
expected to keep the Cash Rate unchanged and keep their hawkish stance.

AUDUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that AUDUSD spiked into the top of the range around the 0.67 handle
following the soft US CPI release but eventually dropped back into the bottom
of the range following the more hawkish than expected FOMC decision and the
risk-off sentiment.

This is where we can expect
the buyers to step in with a defined risk below the support to position for a
rally back into the resistance. The sellers, on the other hand,
will want to see the price breaking lower to increase the bearish bets into the
0.65 handle next.

AUDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the rangebound price action between the 0.67 resistance and
the 0.66 support. These will be the key levels that the market will likely need
to break to start a more sustained trend. For now, will could keep bouncing
around as the market awaits new catalysts.

AUDUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we are starting to consolidate around the support as the price action
became more rangebound. The buyers will want to see the price breaking above
the trendline and the 0.6620 level to gain more
conviction and increase the bullish bets into the 0.67 handle.

The sellers, on the other
hand, will likely lean on the trendline to position for a break below the key
support with a defined risk. The red lines define the average daily range for today.

Upcoming
Catalysts

Tomorrow we have the RBA Policy Decision and later in the day the US Retail
Sales and US Industrial Production. On Thursday, we get the US Housing Starts,
Building Permits and US Jobless Claims figures. On Friday, we conclude the week
with the Australian and US PMIs.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Let’s get straight into details and what can we expect from the respective policy meetings this week.

RBA – Not one for change

With Australian inflation still holding well above the RBA’s threshold range, don’t expect much fireworks from the decision this week. The central bank is expected to keep the bank rate unchanged. And the language in the statement is very much to remain as per the May meeting here.

Although markets are still seeing lingering risks of a rate hike with the RBA, they aren’t likely to lean towards that direction unless inflation stays much more stubborn in the months ahead. As such, the RBA is likely to keep their options open and stick with the forward guidance of „not ruling anything in or out“.

In terms of market pricing, traders are not pricing in any major changes all the way through until November for now. So, the aussie might not have much to work with barring any surprises from the RBA.

SNB – Once again, the propensity to surprise

The SNB surprised with a rate cut in Q1 here and they could surprise again with their policy decision this week. Although traders are largely anticipating another rate cut to follow, it might not be the case. Personally, I think the decision is closer to a coin flip rather than favouring a rate cut.

As an aside, the market pricing is implying a ~72% probability of the SNB cutting rates on Thursday.

The latest inflation report here is still an argument for the SNB to cut further but there is a caveat. Services inflation rose to 2.2% and Jordan was explicit in warning that a weaker franc is the most likely source of inflation now. Adding to that, the latest sight deposits data also suggest that the SNB might be intervening to prop up the franc in recent weeks.

So, if the SNB isn’t too comfortable with inflation risks, they could very easily just choose to not cut rates this week.

As such, I’d view the balance of risks to be for a higher Swiss franc. And that includes even if they do cut rates on Thursday. Considering the political climate in Europe, safety flows are likely to help underpin the franc in the short-term. So, the call would be to fade any overstretched EUR/CHF upside on the SNB this week.

BOE – A nothing burger or laying the ground work for after the summer?

This time last month, some had the June meeting pinned for when the BOE would start cutting rates. But hopes for that were dashed after the April CPI report here. In that lieu, we will be getting the May CPI report on Wednesday but it won’t change anything on what we should expect from the BOE this week.

The central bank is not going to cut rates and will be expected to maintain their current policy stance mostly.

The thing to watch out for will be whether or not they will begin teeing up a move for August. Policymakers had previously said that they were comfortable with markets pricing in such a move but traders are erring to the side of caution for now. A softer set of inflation numbers might bring August back on the table. But for now, traders are still having some reservations.

The market pricing implies a ~45% probability for a move in August, with September being more assuring at ~89%.

The bank rate vote is also one to be mindful of. However, it is expected that it will remain the same at 7-2. The two dissenters, being Ramsden and Dhingra, are still anticipated to vote for an immediate 25 bps rate cut.

If the BOE maintains its language and reiterates that policy needs to remain „restrictive for an extended period of time“, that will keep traders skeptical for a move in August. That especially if accompanied by stronger price pressures in the inflation data this week.

It would not be prudent for them to explicitly tee up a rate cut for August, but they could offer some subtle hints on that. We’ll see. But of course, that needs approval first from the May inflation data. Otherwise, one can safely rule out such a move for the BOE.

The way I see it, the UK CPI report this week might just steal the spotlight and we’re left with a nothing burger on Thursday. That unless the figures are softer than estimated.

Headline annual inflation is expected to fall back to the BOE’s target of 2% in May. That said, core annual inflation remains closer to 4% as per the April reading. Meanwhile, services inflation is still extremely stubborn and has been a thorn for the BOE in delivering further progress on policy. So, that remains a key spot to watch.

This article was written by Justin Low at www.forexlive.com.

The USD last week lost
ground across the board following the soft US CPI report as the market priced back in two rate
cuts by the end of the year. The moves were reversed soon after though as we
got a bit more hawkish than expected FOMC decision where the dot plot showed that the Fed expected just one cut for
this year despite the soft US CPI report.

Fed Chair Powell backpedalled on the projections nonetheless making
them a bit less worrying as the central bank remains very data dependent. The
rally in the US Dollar eventually picked up steam as the risk sentiment turned
more cautious.

The NZD, on the other hand,
got pressured mainly because of the risk-off sentiment and the US Dollar
strength. Moreover, today the Services
PMI came in very weak which weighed on the Kiwi in the Asian session.

NZDUSD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that NZDUSD spiked into the key 0.6217 resistance following the soft US CPI report
and then sold off following the more hawkish than expected FOMC decision. We
have a strong support around the 0.6082 level where we have also the 38.2% Fibonacci retracement level for confluence.

This is where we can expect
the buyers to step in with a defined risk below the support to position for a
rally into new highs with a better risk to reward setup. The sellers, on the
other hand, will want to see the price breaking lower to increase the bearish
bets into the 0.60 handle next.

NZDUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the price action has been mostly rangebound between the 0.6082 support
and the 0.6217 resistance. These will be the key levels that the market will likely
need to break to start a more sustained trend. For now, will could keep
bouncing around as the market awaits new catalysts.

NZDUSD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that from a risk management perspective, the sellers have a good resistance
zone around the 0.6142 level where they will also find the confluence of the trendline
and the 38.2% Fibonacci retracement level.

The buyers, on the other
hand, will want to see the price breaking higher to gain some conviction and
start targeting the break above the 0.6217 resistance. The red lines define the
average
daily range for today.

Upcoming
Catalysts

Tomorrow we have the US Retail Sales and US Industrial Production. On Thursday,
we get the New Zealand GDP and later in the day the US Housing Starts, Building
Permits and the US Jobless Claims figures. On Friday, we conclude the week with
the US PMIs.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• A really big move would matter for CPI forecast
• But these are not big movements
• Do not think policy divergence with the Fed is any more of an issue than it was before
• The peak effect of rates on inflation hasn’t occurred yet

He’s offering plenty of remarks today, covering a broad range of topics. But the bottom line is that they are still going to be data-dependent, waiting to see if they can cut rates again in September next.

This article was written by Justin Low at www.forexlive.com.