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Australia Stays the Course

Reserve Bank of Australia Dismisses Pressure to Drop Interest Rates at Current Time

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Even with mounting risks to the Australian outlook, the RBA stayed the course in its present monetary policies, opting to keep interest rates on hold at 2.25% despite calls to cut further. The Central Bank left the door open for further policy changes, but cited challenges in the labor market and real estate sector as looming risks to the economy.

Australia Leaves Interest Rates on Hold

Amid the turbulence impacting the Australian economy, there were whispers about the possibility of the Reserve Bank of Australia moving to cut rates by 25 basis points overnight to 2.00%. Despite calls from analysts and economists for lower rates, RBA Governor Stevens left the key rate on hold at 2.25% as crashing commodity prices deflate the outlook. While the Central Bank left the door open for further rate cuts, citing the below-trend growth, it has closed in on the preferred AUDUSD exchange rate of 0.7500. In the statement following the announcement, Governor Steven’s cited business capital expenditures as another source of weakness which has caused unemployment rates to trickle higher even though credit growth remains moderate. The one major risk that policymakers are keen to tackle is the growing bubble in the real estate sector, stoked in part by lower interest rates. AUDUSD has gained over 100 pips since the announcement, trading just shy of 0.7700.

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Greek Officials Promise to Pay IMF

After speculation that Greece would not be able to secure the funds to repay the EUR 450 million IMF loan expiring on Thursday, Finance Ministry officials have promised that the obligations would be met on time. The country has just mere weeks of cash left to pay remaining bills, salaries, and pensions, highlighting the growing need to strike a deal with the Troika to receive the next tranche of bailout funds promised under the second bailout. Meanwhile, the Euro has retreated from some of its exuberance with European equity markets set to reopen today following the holiday closure. After flash crashing by over 65 pips in just a matter of seconds overnight, EURUSD has bounced modestly to the upside before retesting lows. Although no major data is due from the Euro Area aside from services numbers, a break below key support at 1.0904 could signal further downside in the pair.

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Former Treasury Secretary Summers Blasts US Government

In the most scathing criticism of the US Government obstinance to joining the Chinese-led Asia Infrastructure Investment Bank, former Treasury Secretary Larry Summers lambasted called the latest failure a turning point in American hegemony. Citing political dysfunction as the main source of problems, Summers was quick to highlight the failure of US policies towards the International Monetary Fund and blame the leadership for not fully comprehending the shifting of global economic hegemony. Economic data released yesterday proved conflicting, after the service PMI recorded a stronger than anticipated gain, while the ISM non-manufacturing PMI fell month over month. Stocks largely shrugged off the data, managing to climb higher after several sessions of weakness. Gains were led by the 0.66% gain in the S&P 500 and Dow Jones Industrial Average. The Nasdaq Composite underperformed modestly, rising 0.62%.

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Silver Head and Shoulders Technical Pattern

Precious metals have steadily gained despite the weak inflationary backdrop as the recent reversal lower in the dollar stokes gains in silver prices. The weakness in US macroeconomic data has been the main culprit behind the dollar’s drop as economists pare their rate hike forecasts, expecting that the Federal Reserve will wait until data improves. Any substantial improvement in economic figures will likely cause the dollar correction lower to rebound higher, setting the stage for weakness in precious metals. The head and shoulders bearish setup in silver prices has a predominantly downward bias as the right shoulder sets up. Optimal positions should be initiated at the top of the shoulder near the 17.090 with 15.540 as the first target and 14.270 as the second target. Any move above neckline 17.090 could signal price momentum higher.

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