EUR/AUD Reversal in Play

EUR/AUD Reversal in Play

EUR/AUD Reversal in Play

The greatest risk for the euro this week will be tomorrow’s ECB minutes and the speech by Mario Draghi. The central bank unleashed a bold round of easing at their last monetary policy meeting and the minutes could outline all of the reasons why they felt that it was necessary. At the same time, euro has risen 6 cents since that meeting and Draghi may want to use tomorrow’s speech as an opportunity to talk down the currency by reminding investors that they stand ready to add more stimulus if needed. For the time being euro is holding onto its gains thanks in part to the smaller decline in German industrial production but against the AUD it is already struggling. The Australian dollar traded higher today on the back of the rise in stocks and stronger Chinese data. Service activity accelerated in the month of March, driving the PMI composite index back into expansionary territory. Between the manufacturing and service sector report, there are growing signs of stabilization in China’s economy and that is positive for Australia economy. On a fundamental basis, we believe that the latest turn in EUR/AUD marks a near term top for the pair.

Technically this week’s rally in EUR/AUD took the pair right to the convergence of the 50 and 100-day SMA. It has since pulled back from this level. The next stop should be 1.4800. If EUR/AUD breaks above resistance at 1.5165, there’s a more significant barrier to break at 1.5250, where the 200-day SMA and 38.2% Fib retracement of 2008 to 2012 move converge.

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