AUD looks constructive against EUR, GBP following latest reversal

Attempts to ram EUR/AUD and GBP/AUD into higher trading ranges failed last week, suggesting the Aussie dollar may be starting to rediscover its mojo against some major European crosses.

EUR/AUD rejected again above 1.6600

With the Aussie more susceptible to sudden shifts in risk appetite than other low beta currencies, it was no surprise to see EUR/AUD lift sharply on Tuesday last week as riskier asset types tumbled in response to the hot US January CPI report, seeing the pair briefly trade above 1.6600. However, for the fourth time in February, the probe above was unable to be sustained, seeing EUR/AUD not only move back below the figure but also take out the uptrend it’s been stuck in since the start of the year.

You can see on the four hourly chart below that having broken the trend on Friday, there was a back-test and subsequent rejection, signalling it is a level worth watching.

While there hasn’t been follow-through selling yet with the price attracting bids between 1.6460-80, continuing the pattern seen earlier this month, with momentum indicators such as RSI and MACD trending lower, there may be more downside than upside risks from the current level.

For those considering taking on a short EUR/AUD position, a stop above the trendline around 1.6510 provides a decent trade setup targeting a move to 1.6415 or even 1.6350 should downside momentum pickup.

Known event risk less than last week

With only second tier economic data on the calendar this week in Australia and Europe, and with other risk events such the minutes from the latest Fed and RBA policy minutes coming across as stale, the price action may not be driven by known risk events as was the case during parts of last week.

As mentioned in an earlier post, the US dollar index did not finish last week well, creating the impression the rally from the beginning of the year may be bearing exhaustion. While both AUD and EUR have been pressured by the stronger dollar, my sense is there’s more upside potential for the former than latter should the dollar start to weaken.

GBP/AUD looks heavy after latest upside failure

The GBP/AUD setup does not look dissimilar to EUR/AUD, although it’s arguably more advanced having broken a minor uptrend last week before pushing lower to test horizontal support at 1.9270. While it has been unable to break lower yet, the rejection above 1.9500, followed by the trend break and series of lower highs on the four-hourly, suggests there may be more downside to come near-term.

A clean break of 1.9270 opens the door to a push to 1.9200, where it attracted bids in late January. Below, support may be found at 1.9130, 1.9025 and 1.8900. I’d prefer to sell a break of 1.9270 with a stop-loss order above, but if you’re sensing downside and want to enter a trade now, the price struggled to break 1.9330 late last week.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.