WEEK 7

WHAT MOVED THE MARKET

RBA Interest Rate Decision

What is the RBA Interest Rate Decision?

The Reserve Bank of Australia decides the interest rate for Australia. Interest rates may affect the valuation of a currency; hence it is monitored carefully. Interest rates provide traders an idea on how the country is going.

Why is it important?

In general, higher interest rates attract more people to put their assets into the currency due to a higher % return on investment, which increases demand for the currency leading to a currency with higher value compared to other currencies. Vice versa, lower interest rates tend to make a currency less valuable compared to other currencies as they produce a lower return on investment. Interest rate decisions are one of the most important economic data releases that traders and investors watch out for in all currencies as they often cause huge volatility when they are being announced.

How does it relate to Forex?

The first Tuesday of every month, RBA decides on whether to increase/decrease the interest rate. Earlier this week (2nd April), it was announced that it will remain unchanged at 1.5%. This caused small volatility within the market while traders decide on the sentiment of the market. AUDUSD dropped from 0.70851 to 0.70594, since then it has recovered hovering around 0.71050. With the RBA still set on not moving the interest rate, we will not be seeing major moves for AUD.

TECHNICAL ANALYSIS

GBP/JPY

Figure 1: GBP/JPY Daily Chart

The GBP/JPY has been following a primary uptrend along the upwards channel since early January after it experienced a sharp fall to 130.611 during the “flash crash”. Last Friday, the pair running along the intermediate downtrend, failed to penetrate the support level of the channel and instead rebounded upwards with a short bullish market rally ending at 147.126. Expectations for the GBP/JPY to continue with this upwards rally through to the next week were instead replaced with brief fluctuations existing around 145-146. The pair now at 145.69 could either penetrate the support level of the channel, which would cause it to follow an even greater bearish trend or rebound upwards. In this rebounding scenario, it would either approach the upper resistance level at around 149 and bounce down (Which has already occurred twice this year) or it could penetrate it as well with the next target being the resistance line of the upwards channel. MACD indicates that the bullish trend experienced in the last 3 months may now be coming to an end, with two bearish crossovers having occurred since early March. The Stochastic RSI has also formed a bearish crossover due to the last 2 days of price dropping. Should the next few days turn out to be bullish MACD will be able to remain above 0 in bullish territory.

Note: GBP/JPY is extremely sensitive to Brexit news, hence may not follow conventional price movement based on technical analysis, so it is advised that one take precautions when trading any GBP pairs.

USD/CAD

Figure 2: USD/CAD Daily Chart

After Monday’s drop due to poor US economic numbers, USD/CAD bounced off the 1.33 support level and has been slowly climbing up the rest of the week closing at 1.3381. MACD is currently within bullish territory (above 0) and is looking to make a bullish crossover if we can get a couple more green candles on the daily, which would be a very bullish sign. The Stochastic RSI has also formed a bullish crossover this week. Overall the pair is looking quite bullish as long as we continue to remain within the upwards channel. In the short term 1.345 is a potential target on the upside, and if we can break above that our longer-term target still remains the upper resistance of the channel.

Economic Calendar for next week