AUD/EUR FUNDAMENTAL OUTLOOK
AUD/EUR lost a fraction in April, declining by -0.6% for the month overall. The decline in the cross was in part due to the IMF raising its forecast for growth in the Eurozone, mixed economic data and confidence that Greece would come to a viable agreement with creditors. Australian data was for the most part in line with expectations, with the highlight for the month, Employment Change, which showed an increase of +37.7K jobs compared to an expected increase of only +14.9K. In addition, the previous number was significantly revised from +15.6K to +42.0K, while the Australian Unemployment Rate declined to 6.1% from a downwardly revised 6.2%.
The RBA left its benchmark Cash Rate unchanged last month, but lowered the rate by 25 bps to 2.0% at their latest meeting on May 5th as was widely expected. In his statement on the Monetary Policy Decision, Governor Stevens noted that, “In Australia, the available information suggests improved trends in household demand over the past six months and stronger growth in employment. Looking ahead, the key drag on private demand is likely to be weakness in business capital expenditure in both the mining and non-mining sectors over the coming year.”
The Eurozone reported mixed numbers in April, with Spanish Unemployment Change showing a drop of -60.2K claims versus an expected decline of -18.3K, nevertheless, the Spanish Unemployment Rate rose a notch to 23.8%. Also showing weakness in April were German ZEW Economic Sentiment and French Flash Manufacturing and Services PMIs. On the positive side were PMI numbers from Germany, Italy and Spain. The ECB left its Minimum Bid Rate unchanged at their latest meeting on April 15th. In his Introductory Statement, President Mario Draghi said that, “The implementation of our asset purchase programmes is proceeding smoothly, with volumes in line with the announced figure of €60 billion of securities per month. In addition, there is clear evidence that the monetary policy measures we have put in place are effective.”
Traders will focus on the ECOFIN Meetings on the 12th and Eurozone GDP data on the 13th, as well as the RBA’s Monetary Policy Meeting Minutes on the 19th for a better idea on the direction of the cross. Because of improving conditions in both economies, optimism in the Eurozone and asset flows now favouring the Euro, the outlook for the cross is lower in the near term, neutral in the medium term and higher in the long term.
| ECONOMIC CALENDAR Major Releases |
|
7th Aus. Employment Change, Ger. Factory Orders 8th RBA Monetary Policy Statement |
AUD/EUR TECHNICAL OUTLOOK
AUD/EUR has been rallying correctively off a long term low point at the 0.6314 level seen on January 23rd of last year. After the correction’s A wave initially peaked at the 0.7244 level early last September, its falling B-wave then came off to the 0.6520 level in mid-December. Thus far, its C-wave rally has risen as high as the 0.7310 level on April 27th, before the cross then sold off sharply to 0.6965 by the 30th.
The longer term picture shows that AUD/EUR rallied from an early 2009 low of 0.4713 to a mid-2012 peak of 0.8616. After breaking the neckline of a head and shoulders top style pattern, it started falling quickly, reaching the 0.6314 level in January 2014 as it traded lower within a descending wedge pattern. That corrective decline took AUD/EUR down 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, with the key 61.8% Fibo level at 0.6204 not yet touched. The cross broke up from that descending wedge in March of 2014, and it traded steadily higher to at the 0.7244 level last September, before falling again to 0.6520 and forming an ascending wedge pattern that has thus far pushed as high as 0.7310. The cross’ overlapping price action in this wedge looks more like a correction than a new impulse, which is consistent with it constituting a C wave higher.
AUD/EUR broke above its key 200 day Moving Average in early March and has since remained largely above it, despite tests in early and late April. The gently rising indicator now reads at the 0.6959 level to yield a mildly bullish medium term outlook. Also, AUD/EUR’s 14-day RSI now reads at the 42.23 level in central neutral territory, which should not impede moves in either direction.
The medium term outlook for AUD/EUR remains correctively bullish while above its 200 day MA, with near term resistance levels seen at the 0.7159 and 0.7283 and 0.7310 levels.
| MAJOR LEVELS | Current level 1.9515 |
|---|---|
|
Resistance 0.7030/0.7159 |
Support 0.6868/0.6965 |
Contact Te’a Truong at OzForex on +61 2 8667 8062 or email tea.truong [@] ozforex.com.au or REGISTER HERE
