During the Asian morning we got the RBA meeting minutes, which did not result in major surprises, but the falling Australian housing prices is something that could worry the Bank in the future. Mark Carney is set to deliver a testimony of the UK inflation report before the Parliament’s Treasury Committee.
During the Asian morning today, we received the RBA meeting minutes, which did not affect the Australian dollar performance in any way, as mentioned in our Strategic Report yesterday. We remember that at the last meeting, the RBA once again kept the interest the same at 1.50%. This, of course, was widely expected, as for now, the Bank does not see the possibility for any further hikes until 2020. The RBA is expecting inflation to pick up slowly over the next year, as lately, it has been balancing around 2.00%.
Australia is currently going through a period, where the economy is performing quite well, but there is a worry that the Australian housing market could be the one, which could cause problems in the future. Because of the affordable lending, homebuilders are able to continue with a good pace of building new housing. This has been reflected in the Australia Construction Output index, which continues to slowly grind higher. The last QoQ reading showed that the construction work in Australia rose by 1.6%. Certainly, that is a small decline from the previous 2.4% that was released in spring but given the fact that the Australia New Home Sales index, since the beginning of this year, has fallen roughly by 13%, this is could be a major issue going forward. The decline in interest for those new homes from the domestic consumers and foreign investors is already felt in the cities and rural areas of Australia. If just going by the simple supply and demand rules, this explains the downfall in the housing prices, as the market is oversupplied with new homes. This may lead to homebuilder struggling to stay afloat later on.
This was mentioned by the RBA deputy governor in the last meeting as well. The Bank has a dilemma that if they would decide increase interest rates, this would also cause problems for homebuilders, as it would increase their costs, which means that the first thing that they would do in order to keep the company running, is to lay off workers. And this is the last thing that the government needs - more unemployment.
Finally, yesterday, the common currency has showed us some strength against its Australian counterpart. After a prolonged decline, EUR/AUD reversed back up and broke some key resistance levels, signalling that the pair could be ready for a some more moves to upside. From the short-term perspective, we will take a bullish position, but one should not forget that overall, EUR/AUD is still below a downside resistance line, drawn from the high of the 11th of October, so this uprise could be a temporary appearance.
During the Asian morning, EUR/AUD made another push higher, where it found resistance near the 1.5745 level, which now will be heavily monitored. If the pair breaks above that level, this could be a good sign for more bulls to step in again and drive EUR/AUD towards the next potential area of resistance at around 1.5800 zone, which was the inside swing high of the 7th of November. A further acceleration of the rate may lead the pair towards an important resistance barrier at 1.5855, marked by the high of the 2nd of November.
Alternatively, if EUR/AUD decides to move back down below the 1.5700 hurdle, this could make the bulls worry, as all eyes would fall on the next potential area of support at 1.5645, marked by the inside swing high of the 16th of November. If that area is not able to withhold the pair from dropping further, traders should keep an eye on the 1.5578 zone, which was the yesterday’s low.
Since the middle of last week, EUR/GBP has been climbing higher, which led to a break above some of the key resistance areas. But our oscillators are telling us that the pair is overextended in the short run, which means that EUR/AUD could retrace a bit lower in order to pick up the bulls, who could drive EUR/GBP back up again.
EUR/GBP got held yesterday near the 0.8932 barrier, which on the 31st of October did not allow the pair to close above it. This means that the pair will have to try hard in order to break that barrier, if it wishes to travel further north. A break above it might set the stage for a test of the 0.8975 resistance zone, marked by the high of the 25th of September. Slightly above that lies another important resistance at 0.8995, which was the peak of the 21st of September. As mentioned above, before EUR/GBP could travel higher again, it might consider a bit of retracement back down, especially if the pair drops below the 0.8900 obstacle, which could lead to a test of the 0.8866 zone, marked by yesterday’s low.
In order to start examining much lower levels, we would need to see a break below the 0.8823 area, marked by the low of the 16th of November. This way, the door could be open for a re-test of the 0.8797 hurdle, or even the 0.8773 level, which was the high of the 12th of November.
During the European morning, in the UK, BoE Governor Mark Carney and several other MPC members will testify on the November Inflation Report before the Parliament’s Treasury Committee. At the conference following the November meeting, Carney said that the nature of the UK’s departure from the EU is not known and that the Bank’s response will not be automatic. It could be in either direction, the Governor said, signalling that rates could go up even in case of a no-deal Brexit. Following last week’s turmoil surrounding the Brexit landscape, it would be interesting to see whether he will stick to his guns.
As for the economic indicators, the UK CBI industrial trends orders for November are coming out, while from the US, we have building permits and housing starts, both for October. The expectations for the permits are currently at 1.267M, which is higher than the previous 1.241M. The housing starts are also expected to have picked up the pace. The number is forecasted to come out at +1.6%, which is a much better one than the previous -5.3%.
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