Will EUR/AUD Break 1.50?

Will EUR/AUD Break 1.50?

Will EUR/AUD Break 1.50?

Fundamentals

Between the Australian employment report and the ECB’s next TLTRO auction, EUR/AUD is in play for the next 24 hours. What makes the currency pair even more interesting is that it is hovering right below the key 1.50 level. For EUR/AUD to blow past this level, all we need is an abysmal employment report or strong uptake for the European Central Bank’s targeted long term refinancing operation. Judging from the PMIs however, there should have been decent job growth in Australia last month and chances are, banks will still be leery of participating in the TLTRO program. This means the odds favor a top at 1.50 rather than a break. Back in September, the ECB was hoping that the uptake would be between EUR100B to 300B but instead it was a pathetic EUR82.6B, eventually pushing the ECB to introduce its ABS program. EUR/USD rallied that day but dropped more than 3% in the 2 weeks that followed. Weak uptake combined with falling inflation pretty much guarantees that the ECB will buy sovereign bonds next year so of the two, the TLTRO should be the bigger mover of EUR/AUD. However we are looking to BUY EUR/AUD if it breaks 1.50 in a meaningful way because the larger surprise would be if the uptake is strong because EUR/USD is deeply oversold.

Technicals

While 1.50 is an important psychological level, taking a look at the monthly chart of EUR/AUD, the 1.5030 level is really key. Smart investors will put their stops slightly above 1.50 and not exactly at that rate so if EUR/AUD clears 1.5030, there is no major resistance until 1.5270, the 38.2% Fibonacci retracement of the 2008 to 2012 decline. If it fails at 1.50, there will be support at 1.4800.

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