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Market Brief
At today’s meeting, the Reserve Bank of Australia (RBA) decided to maintain their cash rate at 10 basis points and the interest rate on Exchange Settlement balances at 0%. They have decided to continue to purchase government securities at the rate of $4 billion a week until at least mid-February 2022. After suffering a setback from the Delta outbreak, the Australian economy is recovering. Strong vaccination rates and policy support have contributed to the recovery and the OMICRON strain although is a new source of uncertainty, is not expected to stall the recovery.
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The daily AUDUSD chart shows the price action from yesterday and in the overnight session has pushed the daily candle up to the last known support level, in a classic retest pattern. If there is still a bearish case to be made, shorting this level may be the next move to make. If the price can close above the intraday high level, there will be another level of resistance around 0.7170-0.7180.
The moves into the Antipodean and commodity currencies started yesterday after the PBOC gave the Chinese banks a reduced reserve ratio requirement. Today’s accommodative stance from the RBA and optimism around the Australian economy could be enough to keep the G-10 forex sentiment risk on.
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Despite a 2.8% increase in industrial production in Germany in October, the EURUSD has remained below the 1.3100 level. Following a downwardly revised 0.5% fall in September, October’s data were better than expected. In contrast, the output of intermediate and consumer goods declined while the production of capital goods and motor vehicles, trailers and semitrailers surged. Today’s data shows German industrial production fell 6.5% from February 2020.
Anyone who is a property owner will find themselves basing their perception of personal wealth on the rise and fall of their asset. Banks love lending to consumers through mortgages and this is one reason why there is asset price inflation of this magnitude. Banks would rather inflate this bubble, with the backing of the UK government, than invest in risky SME businesses.
This morning’s Halifax House Price Index shows house prices in the United Kingdom were 8.2% higher in November than they were a year ago. Compared to October, the average house price increased by 1%, and by 3.4% on a quarterly basis.
With prices surging for the fifth month in a row, the average price of a property has reached a 15-year high. “Looking ahead, there is now greater uncertainty than has been the case for quite some time, with interest rates expected to rise to guard against further increases in inflation,” noted Halifax Managing Director, Russell Galley.
Homeowners who feel that their assets are rising in value may actually start spending into the economy, which will be a positive for Christmas but can become a ‘landmine’ for the economy later if household debt rises and an economic break like the one we saw in 2020 occurs.
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The GBPUSD is still trading within the range set on the 30th of November. 1.32800 is acting as a level of resistance so I am watching here to see if we take out the intraday low for a possible move down to the 1.3195 level and a range expansion lower. The Stochastic indicator is showing a degree of bullish divergence, so a break higher than 1.3370 and we could be on for a more substantial rise in Cable.
At the time of writing all of the indices and commodities that I follow are showing a positive start to the London session.
