ASIA FX: USD/KRW Can't Sustain +1385 Levels, CNH Very Steady

The RBA cut rates 25bp to 3.85%, the lowest in two years, as was widely expected. The impact of current global uncertainty on economic decisions contributed to downward revisions to staff forecasts for GDP growth, inflation and employment but the outlook is significantly unclear. These downward adjustments, especially those bringing inflation closer to the band mid-point, gave the Board room to cut rates for a second time this year and opens the possibility of further easing depending on data and global developments but the RBA “remains cautious”.

• The decision to cut rates was made because Q1 trimmed mean CPI fell below the top of the 2-3% band, downward revisions to global growth and thus Australia’s resulted in lower employment gains and brought inflation closer to the band mid-point, of heightened uncertainty and a slower consumption recovery.
• The board noted that inflation risks were now “balanced” after being “on both sides” in April.
• Market OCR pricing used in forecasting was 20-30bp lower than in February and still drove a 0.1pp downward revision to underlying inflation bringing it to 2.6% across the horizon. Headline was adjusted to reflect not only softer growth but changes to the government’s electricity rebate but it now doesn’t exceed 3.0% helped by a materially lower oil price assumption.
• GDP growth was revised down 0.3pp in Q4 2025 to 2.1% as consumption is now forecast to grow 1.9% down from 2.6%. Business investment and exports are also lower while public demand and dwelling investment are now forecast to be higher. End-2026 GDP was little changed at 2.2% with stronger private consumption offsetting weaker public demand.
• The unemployment rate is forecast to peak 0.1pp higher at 4.3%, while employment growth was revised down 0.7pp to 2.1% in Q2 2025 (April +2.7% y/y) and -0.6pp to 1.4% y/y in Q4, but it reiterated that the labour market remains tight. Wages growth was revised 0.1pp lower across the horizon and productivity slightly higher. 

• RES 4: 0.8768 High Nov 20 ‘23    
• RES 3: 0.8624/0.8738 High Apr 21/ High Apr 11 and the bull trigger
• RES 2: 0.8541/8557 High May 2 / High Apr 28
• RES 1: 0.8457 50-day EMA
• PRICE: 0.8413 @ 06:31 BST May 20
• SUP 1: 0.8394 Low May 16   
• SUP 2: 0.8359 1.236 proj of the Apr 11 - 16 - 21 price swing
• SUP 3: 0.8316 Low Mar 28 and a key support
• SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing  

EURGBP is trading at its recent lows. A bearish theme remains in play. The cross has recently cleared 0.8457, the 50-day EMA, signalling scope for a continuation lower near-term. The 0.8400 handle has been pierced, a continuation lower would open 0.8359, a Fibonacci projection. Key near-term resistance to watch is 0.8541, the May 2 high. A break of this hurdle is required to signal a potential reversal.

• RES 4: 107.775 High Apr 7 and the bull trigger    
• RES 3: 107.600 High Apr 30  
• RES 2: 107.550 High May 7  
• RES 1: 107.320/335 20-day EMA / High May 12                  
• PRICE: 107.280 @ 06:10 BST May 20
• SUP 1: 107.175/070 Low May 19 / 13 and the bear trigger  
• SUP 2: 106.965 Low Apr 9 and a key support     
• SUP 3: 106.928 61.8% retracement of the Mar 6 - Apr 7 bull cycle        
• SUP 4: 106.830 Low Mar 27      

Despite recent gains, a  bearish theme in Schatz futures remains intact for now. A resumption of the bear leg would signal scope for an extension towards the next key support at 106.965, the Apr 9 low. The bear trigger has been defined at 107.070, the May 13 low. On the upside, resistance to watch is 107.335, the May 12 high. Clearance of this hurdle would signal a potential reversal. This would open 107.550, the May 7 high.