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Today’s sharp rally in the Australian dollar led EUR/AUD to close below 1.50 for the first time since early December. The catalyst for the move in AUD was RBA Governor Glenn Steven’s nonchalant attitude about the current level of the currency. This is significant because it was only a few months ago that Stevens said he wants to see currency pair trading closer to 85 cents, which is significantly lower than current levels. The central bank has clearly become more tolerant of AUD strength, which should lead to more short covering. If China fast tracks its stimulus we could see a further rally in EUR/AUD. At the same time, euro is pressured by weaker data and talk of negative rates. However the region’s record current account surplus has limited the sell-off in the pair. From a fundamental basis, we believe EUR/AUD is headed lower but a catalyst may be needed for the momentum to accelerate.
Taking a look at the daily chart of EUR/AUD, after breaking through the 38.2% Fibonacci retracement of November to January’s rally, EUR/AUD slipped quickly and aggressively. It pierced through the 50% Fib of the same move but has since stalled above that level. How the currency pair trades around the 1.4950 level is key. If it finds support at this level, it could rebound as high as 1.52 but if it continues lower the next stop should be 1.4735.