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A potentially wild ride this week

Published April 30, 2019

Author: Perry Mitchell

Overnight most major currencies held in tight ranges on light trading volume as Japan began its extended Golden Week holiday. It is a period at the end of April/beginning of May that encompasses several holidays during a short timeframe. FX volatility is relatively subdued, which raises the risk that volatility may be somewhat under-priced particularly given the upcoming tier 1 data and central bank rate decisions from the Fed and BoE.

AUDUSD holds the strength this morning trading around 0.7050, now waiting for the key China PMI Data at 11 am AEST. Risk sentiment has also improved as can be seen through 10 yr Treasury yields from the US which gained nearly 3 basis points to 2.53%.

The Federal Reserve meets later this week for its May meeting and both economic and market conditions couldn’t be more different than when the FOMC last met. Throughout March concerns were running rampant that the US government shutdown was going to have a significant negative impact on Q1 US GDP, which at this point in time we know was overblown: 3.2% annualized growth was reported last week.

The IMF’s Christine Lagarde said overnight, that she expects the US and China to reach a deal to end their trade dispute, which has unnerved financial markets and cast a shadow over the global economy.

A Federal Reserve policy meeting, Brexit negotiations and a raft of global data including U.S. payrolls could each be the trigger for big currency swings this week.

AUD Techs – a successful break of 0.7055-60 seems necessary for the pair to aim for 50-day simple moving average – around 0.7105 and the 100-day simple moving average mark near 0.7125.

On the downside, 0.7030 and an upward sloping trend-line since January 04 can challenge sellers near 0.7005/0.7000, a break of which highlights 0.6980 and 0.6910 supports.