AUD/USD looks set to pop higher, Nikkei and Nasdaq diverge

US producer prices were softer than expected, falling -0.2% m/m or 2.2% y/y versus 2.5% expected. Core PPI was flat at 0% and core CPI at 2.3% y/y versus 2.4% expected, although the prior months was upwardly revised to 2.5%. Retail sales also disappointed at 0.9% compared with 1.3% prior, but that is not exactly rolling over. Overall, yes it shows softer prices and demand but not enough to warrant imminent Fed action.

The US dollar recouped most of Wednesday’s post CPI and FOMC losses yesterday, weighing on gold, silver and copper. Silver briefly traded below $29 before recovering back above it, and whilst gold formed a three-day bearish reversal (dark cloud cover) , it continues to hold above last week’s low and the $2300 handle.

Former President Donald Trump met with Republicans, and suggested they could reduce income tax and replace with tariffs if they are to regain the Whitehouse at the next election. After the meeting he told press that there is “tremendous unity in the Republic Party”.

The S&P 500 and Nasdaq 100 rose to a new record high for a fourth consecutive day, although in both cases the produced small indecision candles (Rikshaw man doji) to warn of exhaustion to the move.

AUD/USD technical analysis:

The Australian dollar posted a solid rally from the April low before entering a choppy range mostly between 66c-67c. The market has clearly struggled to make an impact around 67c, although it looks like it wants another crack at it today. A small bearish inside day formed Thursday, which remained in the top half of the open-close range of Wednesday’s bullish range expansion day.

The 1-hour chart shows prices have retraced lower, yet remains within the range formed at the US CPI report. And I suspect that provide some decent support and a bust higher. However, prices are holding above the 20-day EMA with the weekly pivot at 0.6620 also on hand to lend support if need be.

Nikkei 225 futures technical analysis:

Despite the Nasdaq notching up a record high for a fourth straight day, the Nikkei failed to test the May high. And I find that very telling. Because if it cannot rise on supposedly good conditions for global tech stocks, it could be a prime candidate for a short should sentiment sour. We’re not there yet, but it is a scenario to keep in mind. And it keeps alive the original bias for a move down to 37k, or even 35k.

Nikkei futures are lower for a third day, and the 1-hour chart shows bearish momentum has accelerated. A minor rebound over the past four hours sent prices back above the monthly pivot point, but this seems to be a market to consider fading into whilst prices remain below 38k. A high-volume node, 20-day EMA, 38.2%/50% retracement level sit around a prior consolidation, which could provide strong resistance should prices revert high ahead of the next anticipated drop.

The initial downside target is the low around 38.3k, a break beneath which brings 38k into focus.

Economic events (times in AEST)

The BOJ meeting is the main event in Asia today. Marker pricing favours a 10bp hike in July, so the question is whether there’ll be any clues to confirm or dispel these expectations. Of course, there is always an outside chance they may hike today – as they do like to surprise. But I’m not sure it will have a material impact on markets given we’re primed for an excruciatingly slow ad steady path to policy normalisation.

• 11:00 – Australian inflation expectations (Melbourne Institute)
• 11:30 – Australian consumer sentiment (Westpac)
• 13:00 – BOJ interest rate decision
• 14:30 – Industrial production, capacity utilisation
• 21:00 – China outstanding loan growth
• 00:00 – US consumer sentiment (Michigan University)
• 04:00 – Fed Goolsbee speaks

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge