Why EUR/AUD Could Hit 1.48

Why EUR/AUD Could Hit 1.48

Fundamentals

EUR/AUD climbed to a 4-month high last week and we see the possibility of further gains. China’s Q3 GDP report is scheduled for release Monday evening (Tuesday morning local time) along with retail sales and industrial production. Both currencies are in play next week with the RBA minutes, Australian CPI and Eurozone PMI numbers on the calendar. However China’s data could have a larger impact on the pair, especially in the first half of the week. The PBoC’s surprise decision to inject $32B into their banks on Friday could be an attempt at damage control. If China’s economic reports disappoint, reinforcing the market’s broader concerns about growth, the Australian dollar will be hit the hardest, translating into further gains for EUR/AUD. Although the Eurozone PMI numbers are not expected to be pretty, they are not due until the end of the week.

Technicals

Taking a look at the daily chart of EUR/AUD, there is a clear inverse head and shoulder pattern with a neckline at 1.45. EUR/AUD is trading above this level, which means the neckline has been broken. While the break is shallow and not strong, we still believe that this bullish technical pattern will pave the way for a stronger move up to 1.48. However if EUR/AUD drops back below 1.44, then the pattern will be negated and the outlook for the currency pair turns bearish.

Chart Of The Day

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