Global equities higher, a big day for the Aussie dollar, oil rally flattens off, ASX futures up 29 points

Global markets rose again last night. Why? I believe investors are comfortable with the idea of more of the same - more time to enjoy low interest rates, more time to enjoy low oil prices, more opportunities to front-run European quantitative easing. Of course this complacency will exist until the market suddenly decides that its not working any more, which is why it's important to focus on technical indicators if you're taking a short-term, top down view of the markets. ASX 200 futures have bounced 100 points from their Friday lows - the cash index CFD--as pictured on today's second chart--is sitting at 5,848 and is enjoying the buying support that exists between 5,740 and 5,810, as outlined in yesterday's Rivkin Global excerpt.

There is little doubt that the source of today's volatility will come from the Reserve Bank of Australia's (RBA) interest rate decision, which will become known at 2:30pm Sydney time. Cash rate markets are pricing in a 76% chance of a rate cut and, as you can see from today's third chart, the AUDUSD currency pair (black) has held levels of US$0.78+ knowing that the smart money is running these odds of a cut. I think today is a much harder trade for the AUDUSD than it was on Tuesday 7 April, the date of the last rate decision. On 7 April, the market for AUDUSD was sitting at below US$0.76 and this was just above a key buying support level that made the trade a lower risk set up for a buy - if the Bank cut, then the move was mostly priced in anyway so chances were you wouldn't lose much. If the Bank left rates where they were (as it did), then the market would rally. Today, at US$0.784 or so, we are at the lower end of key buying support that, according to Rivkin FX's proprietary analysis, sits at US$0.7740. If a cut does materialise this afternoon, I believe the AUDUSD could dive to that level or lower, while a decision to leave rates on hold would retest the selling resistance at US$0.7910.

For those readers who are versed in technical analysis, here are some AUDUSD technical trading notes from Rivkin's Senior FX Analyst Richard Sexton:  "The 50% Fibonacci level at 0.7805 is seeing buyers, but so far the bounce has been rather mild. There is potential for a deeper probe of the support area defined by the purple dot on the 240 min chart below. The 50 day moving average and the 61.8% fib at 0.7740/45 could be tested if the RBA cuts rates, with the 0.7910 level (where the red horizontal line lies) in focus on a no-change decision. We will not be seeking a position until after this announcement. Trade Balance figures at 11.30am could see a move but big money will wait till after 2.30pm Sydney time to trade this pair." (Please refer to today's first chart.)

Lastly, a quick note on the oil price: The move higher in WTI crude (OILUS for Rivkin Trader clients, pictured in today's last chart) is beginning to slow, after rallying 40% from its low on 18 March (US$42.01) to its currency price of US$58.95 per barrel. This is looking like a nicer set-up for a short trade than it has for the duration of this rally so far, having now consolidated for a few sessions. The next move will either come from a trading reversal of this rally (lower) or a some geopolitical news that affects supply, which could go higher or lower. But if traders who have jumped on this rally are getting a little exhausted and keen to take profits, I would think that the next move would be lower - but run a tight stop at levels above US$60 per barrel if you take this view.



Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Australian AiG performance of service index out at 9:30am, Australian trade balance at 11:30am, RBA rate decision at 2:30pm, US trade balance at 10:30pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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