The greenback tumbled once again overnight, following news that the Republican healthcare bill – or Trumpcare 2.0 as it has been dubbed – is highly unlikely to pass the Senate and is most likely dead. The move came after two Republican Senators announced they are also against the legislation, leaving the bill without enough votes to pass. This implies that Trump’s tax reform agenda may be now more difficult to implement and may take longer to arrive, as the cuts in healthcare were expected to finance some of the promised fiscal measures.
Moving forward, we think that the dollar could remain on the back foot over the next few days, at least until next week’s FOMC decision. Combined with Friday’s disappointing economic data, these downbeat political news as well as the absence of any Fed speakers or US indicators this week, suggest that neither politics nor economics are likely to support the greenback in the days to come.
EUR/USD traded north during the Asian morning Tuesday, breaking above the resistance (now turned into support) of 1.1485 (S1) to stop near the 1.1530 (R1) barrier. The price structure continues to suggest a positive medium-term outlook and as such, we would expect a clear break above 1.1530 (R1) to open the way for our next resistance level of 1.1615 (R1), defined by the peak of the 3rd of May 2016. Nevertheless, the weekly chart still points to a sideways range, with its upper bound near the 1.1710 (R3) territory. As such, as we get closer to that zone we would be careful that a retreat may come into play. We prefer to wait for a clear close above 1.1710 (R3) before we conclude that the medium-term uptrend has evolved into a long-term one.
Aussie dollar rallies after upbeat RBA minutes
AUD extended its recent gains overnight, following the release of the RBA’s July meeting minutes. The tone of the minutes was quite upbeat, which probably came as a surprise considering that the statement of that meeting was neutral, disappointing market participants who expected an optimistic shift. In the minutes, the Bank indicated that the neutral nominal rate of interest in the Australian economy is around 3.5%. This suggests that a potential move back to neutrality could see the Bank’s rate rising by as much as 200bps. Even though policymakers did not hint this is on the cards anytime soon, the fact that the discussion took place may have been interpreted as laying the foundations for a move earlier than previously anticipated.
AUD/USD surged overnight following the minutes. The pair emerged above the resistance (now turned into support) of 0.7840 (S1) and at the time of writing, it looks to be headed towards the 0.7935 (R1) zone. In our view, the clearing of the 0.7800 (S2) obstacle, which acted as the upper bound of the sideways range that had been containing the price action since the beginning of March 2016, opens the door for larger upside extensions. We expect a clear break above 0.7935 (R1) to pave the way towards the psychological zone of 0.8000 (R2).
New Zealand’s CPI slows; NZD slips
The Kiwi slipped overnight, after data showed that New Zealand’s CPI for Q2 slowed by more than anticipated. Importantly, the nation’s CPI rate is now notably below the RBNZ’s latest forecasts. Even though we don’t expect the RBNZ to shift to dovish as a result of this, we think that these soft data will probably be enough to keep the Bank’s tone neutral for a while.
Today’s highlights:
During the European day, the UK CPI prints for June will be in focus. The forecast is for both the headline and the core rates to have held steady. Having said that, we view the risks surrounding these forecasts as skewed to the downside, considering that the nation’s services PMI for June indicated that the rise in average prices was the slowest since July 2016. A potential pullback in these rates would probably ease some of the pressure on the BoE to raise rates in order to curb overshooting inflation. Something like that could hurt GBP.
From Sweden, we get the minutes from the Riksbank’s July policy meeting, where the Bank remained on hold. Even though policymakers noted that the likelihood for any further rate cuts has declined, they maintained their easing bias, disappointing those who were expecting a removal. As such, we will go through the minutes to see whether the removal of the easing bias was indeed discussed, and if so, whether the decision to keep it in place was unanimous or a close call. If it was a close call, SEK could gain.
In Germany, the ZEW survey for July is due out, while from the US, we get the NAHB housing market index for July.
EUR/USD
Support: 1.1485 (S1), 1.1435 (S2), 1.1380 (S3)
Resistance: 1.1530 (R1), 1.1615 (R2), 1.1710 (R3)
AUD/USD
Support: 0.7840 (S1), 0.7800 (S2), 0.7740 (S3)
Resistance: 0.7935 (R1), 0.8000 (R2), 0.8070 (R3)
