Central Bankers around the world managed to spike market volatility last week as they sent a clear message to the market about their future policies. It looks like the Central Bankers are on the same page once again. Most of them stated that the easy monetary policy era is coming to an end.
This has led to a notable decline in global indices until late Friday. At the same time, bond yields posted one of the biggest daily gains since the beginning of this year.
These remarks by central bankers are disappointing for investors, especially that the easy monetary policies were behind the notable rally that we saw right after the financial crisis.
Ending the easy policies would push yields higher, which will be the biggest challenge for the central banks around the world.
RBA May Intervene As Well
During the next Asian session, eyes will be on the Reserve Bank of Australia’s decision, which will be released at 04:30 GMT+.
The estimates so far point to no change, including the Cash Rate, which stands at 1.50%.
However, despite last week’s remarks by central bankers, the Reserve Bank of Australia is likely to be dovish, despite the fact that some of the economic releases have been encouraging over the past quarter, including growth, jobs, and inflation. Yet, the housing market is still overheated.
At the same time, the Reserve Bank of Australia is looking for much weaker Aussie. In the past few meetings, the RBA said that the Aussie is overvalued and that higher Aussie will complicate the economic adjustment.
This is why the RBA might intervene, but the intervention would come through the statement and not by actions.
Aussie At Significant Supply Zone
As we noted many times in our previous reports and weekly videos, the Aussie has been trading within a range since March of last year until today.
However, what’s interesting in this range is that the Aussie spent more than 15 months trying to break above 0.77-0.7760s’ resistance area but without any chance.
Looking at the daily and/or the weekly chart, we can see that every time the Aussie tests that area, a notable decline follows.
Most of the declines used to be whether few days right after the decision announcement, or few days right after the Monetary Policy Meeting Minutes.
This might scenario is likely to occur once again in the coming days. But first, lets see what the decision will be and how the RBA will sound like.
From a technical point of view, the Aussie is trading right below its long term down trend line which remains solid since April of 2016.
Last week the pair tried to break above that solid resistance, but it retreated earlier this week, which is a clear sign for a notable supply around last week’s highs.
There are two possible scenarios:
- A Break above the trend line would drive the pair higher once again, but likely to remain below the supply zone which is between 0.77 and 0.7760’s before the decline continues.
- A continuation of the current drop right from the trend line resistance, all the way back to the first immediate support which stands at 0.7620 followed by 0.7588.
The bearish outlook remains as long as the pair continues to trade below the supply zone between 0.77 and 0.7760.
The invalidation signal of these scenarios would be a clear weekly close above 0.7760. If so, the Aussie outlook will be upgraded from bearish to cautiously bullish.