The US equity market surged yesterday, mainly driven by Apple Inc (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT). Today, during the Asian morning, The Reserve Bank of Australia came out with its cash rate announcement. As was expected, the Bank didn’t go ahead with moving its cash rate from the current position, at +0.25%.
Apple and Microsoft Help Keep The Risk-On Environment
The US equity market surged yesterday, mainly driven by Apple Inc (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT). Investors continue to buy into Apple, as their stock is set for a 4-for-1 stock-split at the end of August 2020. Let’s not forget that this would be the company’s 5th stock-split in its history. Investors seem to be fine with this idea, as this shows that the tech giant is quite confident in its future growth. Every time Apple Inc did a stock-split, the share price ended up rising again and making a lot of investors happy. The motives of another stock-split are clear, as the company wants to create an even broader investor base, making the stock more attractive.
Another catalyst of equity markets rising yesterday was Microsoft, or to be more precise, the news surrounding Microsoft’s intension to buy the North American part of Tik-Tok’s operations. As we know, lately, the US President attacked Tik-Tok, because of concerns over national security. Mainly due to the fact that Tik-Tok has a huge amount of active registered user in the US and that the company is Chinese-owned. The last point is a huge problem for Mr Trump, as he seeks to limit the exposure of Chinese companies into the US, because of the ongoing trade wars. However, if some US tech giant would control Tik-Tok’s US operations, that wouldn’t be a problem for the US President. And this is where Microsoft fits in. Despite having LinkedIn under its wing, Microsoft was seeking to have better exposure in the social media world, to rival other giants like Facebook, Twitter and Snapchat. Buying the US part of Tik-Tok, would give MSFT a chance to get a bigger piece of the social media pie.
DJIA – Technical Outlook
The DJIA index was seen declining last week and a few times dropping below its short-term tentative downside resistance line drawn from the low of June 28th. This week, the index has climbed back above that upside line and is now making its way above one of its key resistance areas between the 26701 and 26727 levels. As long as the price remains above that area, we will stay positive with the near-term outlook.
A further push higher could bring the rate the 26830 obstacle, a break of which may set the stage for a drift to the 27048 zone, marked by an intraday swing low of July 23rd. DJIA might get halted there temporarily, or even correct back down a bit. That said, if the price continues to balance above the 26700 hurdle, the bulls could stay interested. If the index gets another boost from the buyers and it moves back to the 27048 barrier, a break of it this time may clear the way to the 27163 and 27178 levels, marked by the highs of July 23rd and 15th respectively.
In order to shift our attention to some lower areas, a break of the aforementioned upside line and a price-drop below the 26307 hurdle, marked by yesterday’s low, would be needed. DJIA may attract a few more sellers into the game, this way potentially send the index towards the 25984 obstacle, a break of which might clear the path to the 25821 level, marked by an intraday swing high of July 10th.
RBA Leaves Interest Rate At The Same Level
Today, during the Asian morning, The Reserve Bank of Australia came out with its cash rate announcement. As was expected, the Bank didn’t go ahead with moving its cash rate from the current position, at +0.25%. In the last month’s monetary policy statement, the RBA stated that the Australian economy is experiencing the biggest contraction since the 1930s. The country’s unemployment has risen roughly by an additional 2%, comparing to where it was throughout 2019 and in the first three months of 2020. The Bank continues to monitor carefully the economic situation in the country and to support the liquidity of the domestic financial system. The current times of the pandemic are strongly affecting Australian households, as their consumption deteriorates due to uncertainty of the future economy. This morning’s Australian MoM and QoQ retail sales release came out mixed.
The MoM reading was on the better side, at +2.7%, beating the forecast of +2.4%. However, the QoQ figure showed up as a slight disappointment in relation to the expected -3.2%. The actual number was at -3.4%. Given that the retail data was mixed and there were no changes in RBA’s cash rate, the Australian dollar remained almost unchanged in relation to its major counterparts.
AUD/CAD – Technical Outlook
Last week, after hitting the area just slightly below the 0.9700 mark, AUD/CAD retraced back down and yesterday it ended up breaking its short-term upside support line drawn from the low of June 21st. This morning, the pair continues to trade below that line, this way increasing its chances of drifting a bit lower, at least in the near term.
If the rate continues to slide and drops below yesterday’s low, at 0.9505, that would confirm a forthcoming lower low and may clear the path to some further declines. More sellers could see it as a good opportunity to step in. If so, AUD/CAD might fall to the 0.9490 hurdle, or even the 0.9431 zone, marked by the low of July 10th and 13th. Initially, the rate could stall there temporarily, but if the bears are still feeling a bit more confident, a break of the 0.9431 obstacle may set the stage for a slide to the next potential support area, at 0.9382, marked by the lows of July 2nd and 3rd.
On the other hand, a push back above the previously-discussed upside line and a rate-rise above the 0.9585 barrier, marked by an intraday swing high of July 31st, could make more buyers a bit more excited. AUD/CAD may then travel to the 0.9641 area, a break of which might open the door to the 0.9696 level, which is the highest point of July.
As For The Rest Of Today’s News
During the early hours of the Asian morning today we got the Tokyo core and headline CPI figures from Japan for the month of July. The numbers came out on the positive side. The core CPI had beaten the expectation of +0.2% by two tenths, showing up at +0.4%. The headline number was twice the previous reading of +0.3%, coming out at +0.6%. Although the actual figures went up, those are still far from the BoJ inflation target of +2.0%.
The calendar looks relatively quiet in terms of other date. US MoM factory orders for the month of July are coming out. The expectation is for a drop from the previous +8.0% to +5.0%. Oil traders might keep an eye on the weekly US crude oil inventories delivered by the American Petroleum Institute. Currently, there is no forecast for the upcoming figure.
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