AUD/EUR FUNDAMENTAL OUTLOOK
AUD/EUR extended its previous month’s losses in May, declining – 1.1% for the month overall. The decline in the cross was in part due to asset flows favouring the Euro over the Aussie, lower commodity prices and renewed confidence that Greece would come to an agreement with international creditors. Australian numbers indicated a slowdown in employment, with Employment Change declining by – 2.9K jobs in April, versus an expectation of an increase of +4.5K, while the Australian Unemployment Rate increased to 6.2% from 6.1%. Also showing weakness was the Australian Trade Balance, which showed a deficit of -1.32B compared to an expected deficit of -0.98B.
On the positive side, Australian Building Approvals and Home Loans both came out better than expected in May.The RBA left the Cash Rate unchanged at 2.0% at their latest meeting on June 2nd after cutting the rate by 25 bps at their May meeting. In his Statement on Monetary Policy, Governor Glenn Stevens noted that, “Having eased monetary policy last month, the Board today judged that leaving the cash rate unchanged was appropriate at this meeting. Information on economic and financial conditions to be received over the period ahead will inform the Board’s assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”
European economic numbers were mixed in May; nevertheless, the main driver for the Euro was the situation in Greece. The uncertainty on whether Greece would come to an agreement with creditors finally began showing promise at the beginning of June. The ECB left its benchmark Minimum Bid Rate unchanged at 0.05% at their latest meeting on June 3rd. In his introductory statement to the press conference, ECB President Draghi noted that, “As explained on previous occasions, our asset purchases of €60 billion per month are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term.”
Traders will be watching Australian Employment numbers on the 11th, the RBA’s Monetary Policy Meeting Minutes on the 16th and the ECB’s Targeted LTRO on the 18th for indications on the direction of the cross. Due to the effects of monetary stimulus in the Eurozone, and a possible resolution to the Greek situation, the outlook for the cross is neutral in the near and medium terms and lower in the long term.
| ECONOMIC CALENDAR Major Releases |
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5th OPEC Meetings |
AUD/EUR TECHNICAL OUTLOOK
AUD/EUR has been rising in an A-B-C correction from the 0.6314 low of January 23rd, 2014. The correction initially rose to the 0.7244 level last September, then fell to the 0.6520 level in mid- December, and its most recent rally took it up to the 0.7310 level on April 27th, before the cross broke its near term up trend line to fall as low as the 0.6896 level on June 2nd.
A longer term perspective shows the strong rally in AUD/EUR from an early 2009 low point up of 0.4713 up to a mid-2012 high at 0.8616. Breaking a head and shoulders top style pattern’s neckline started the cross’ corrective decline within a descending wedge pattern, as it quickly fell to the 0.6314 level by January of 2014 breaking through the 23.6%, the 38.2% and the 50% Fibonacci retracement levels of its preceding long term rally located at 0.7695, 0.7125 and 0.6665 respectively in the process. After AUD/EUR broke up from that descending wedge in March of 2014, it traded up to the 0.7244 level by last September and then declined to 0.6520 and began forming an ascending wedge pattern. That pattern pushed back above the 38.2% Fibo level to peak at the 0.7310 level on April 27th, whereupon two sharp sell offs broke its lower support line at the 0.7047 level. The cross’ next key support points are at 0.6713 and 0.6520, with the 50% Fibo level between them at 0.6665 and the key 61.8% Fibo level at 0.6204, which has not yet been touched by this correction.
AUD/EUR consolidated above its key 200 day Moving Average in early May but broke sharply below it on the 28th, reversing its slope to mildly negative. The indicator now reads at the 0.6965 level to yield a mildly bearish medium term outlook. Also, AUD/EUR’s 14- day RSI has supported its recent drop and now reads almost oversold at the 30.16 level, which may impede declines.
The near and medium term outlooks for AUD/EUR have recently become bearish to coincide with the longer term view for the cross.
| MAJOR LEVELS | Current level 0.6842 |
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Resistance 0.6868/0.6965 |
Support 0.6796 |
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