RBA decision tomorrow

MORNING OVERVIEW

The dollar strengthens, with gold moving lower and oil prices finding support as President Trump rejects Iran’s ceasefire proposal. In other news, market participants may find themselves tuning into the RBA’s decision tomorrow, in which the bank is widely expected to hike rates.

MARKET SNAPSHOT

MARKET	CURRENT	CHANGE	COMMENT
S&P 500	7707	-0.46%	N/A
DXY	101.15	+0.18%	Mid-East
AUD/USD	0.7014	-0.13%	RBA decision tomorrow
Gold	4157	-2.97%	N/A
Brent Crude	106.38	1.95%	US rejects Iran proposal

KEY MARKET THEMES

01 — President Trump rejects Iran ceasefire proposal

Iran last week had presented Washington with a plan that was meant to re-open the Strait of Hormuz within seven days had it been accepted. However, on Saturday President Trump announced that he had rejected the proposal, stating per Reuters that “They want to make a deal to open the Hormuz Strait immediately because they’re losing so badly” and that the US was “winning tremendously”. In turn, the rejection of the Iranian deal, could lead to heightened tensions between the two nations, should they exchange blows militarily. Thus, following the announcement, the oil prices may have found support once the market opened.

Market implication (OIL): Bullish

02 — RBA decision tomorrow

The RBA’s interest rate decision is set to take place during tomorrow’s Asian and could thus the Aussie could garner attention from market participants. In particular, the bank is widely expected to hike rates by 25 basis points, with AUD OIS implying a 99% probability for such a scenario to materialize. Therefore, participants may have already priced in the rate hike in the Aussie and thus attention could shift to the bank’s accompanying statement where any implication of further rate hikes could provide further support for the AUD. On the other hand, an implication of the bank remaining on hold could have the opposite effect. In our view, we wouldn’t be surprised to see an overall hawkish tone emerging from the bank.

Market implication (AUD): Bullish

03 — US and China agree to a $60bn low tariff regime

The US and China have agreed to create a lower tariff regime, covering $60bn in non-sensitive goods. According to media outlets, the so called 30 for 30 framework by a board of trade would allow each country to import $30bn worth of goods from each other  at lower tariff rates. The deal showcases an improvement in the relationship between the two nations with the Chinese commerce ministry stating that the deal would help “maintain stability” in economic relations with the US. Overall, the deal may alleviate worries of another trade war between the US and China.

Market implication (Gold) : Bearish

WHAT MATTERS TODAY

ECB Elderson speaks

Time (GMT+2): 12:30

Expected: N/A
Previous: N/A

Potential market reaction:
Could influence the EUR

FED Governor Cook speaks

Time (GMT+2): 20:25

Expected: N/A
Previous: N/A

Potential market reaction:
Could influence the dollar.

WHAT MATTERS TOMORROW

RBA interest rate decision

Time (GMT+2): 07:30

Expected: 4.60%
Previous: 4.35%

Potential market reaction:
Could support the AUD

ASSET FOCUS

[OIL / COMMODITIES]

Oil prices appear to be moving in an upwards fashion, having rebounded above our resistance now turned to support at the 91.25 (S1) level. We opt for a bullish outlook for the commodity and supporting our case is the upwards moving trendline on our chart. However, we should note that the RSI indicator currently showcases a figure close to 50, implying a neutral market sentiment. For our bullish outlook to be maintained, we would require a clear break above our 99.30 (R1) resistance line, with the next possible target for the bulls being our 105.60 (R2) resistance level. On the other hand, for a sideways bias we would require oil’s price to remain between our 91.25 (S1) support level and our 99.30 (R1) resistance line. Lastly, for a bearish outlook, we would require a break below our 91.25 (S1) support line, with the next possible target being our 84.75 (S2) support level.

KEY LEVELS

• Resistance (R1): 99.30
• Resistance (R2): 105.60
• Support (S1): 91.25
• Support (S2): 84.75

Technical View: Bullish

CROSS-ASSET VIEW

ASSET CLASS	BIAS	KEY DRIVER
Equities	Neutral	N/A
USD	Bullish	N/A
Gold	Bearish	Dollar
Oil	Bullish	Rejection of Iran’s proposed deal

RISKS TO THE VIEW

The US proposing a ceasefire deal

The US proposing a ceasefire deal after rejecting Iran’s is the biggest risk to our view

TRADING SPHERE VIEW

Bullish for Oil

Our base case:
Tensions between the US and Iran could increase as the US rejects Iran’s proposal. In turn, we may see military strikes resuming the future.

What would change our view:
The US and Iran signing a peace deal

TODAY’S WATCHLIST

01 ECB Elderson’s speech

02 Fed Governor Cook’s speech