Hawkish ECB causes EUR/AUD to breakout

The European Central Bank hiked interest rates by 50bps to bring the deposit rate to 2%. This comes after 2 consecutive interest rate hikes of 75bps, though Christine Lagarde said that this is by no means a “pivot”. The central bank also indicated that there will be more interest rate increases to follow, at a measured pace, as inflation forecasts were revised higher. The ECB now sees inflation for 2022 at 8.4% vs a previous forecast of 8.1%. In addition, the 2023 forecast for inflation is now forecast to be 6.3%. The ECB also mentioned that it will begin QT in March at a pace of 15 billion Euros per month. However, the most surprising news was during the press conference when Christine Lagarde said that it’s “obvious” that we should expect 50bps hikes for a period of time. Lagarde also said that the ECB needs to do more on rates than markets are pricing in. As a result, the Euro went bid against most currencies (however it later pared gains vs the US Dollar).

Everything you need to know about the ECB

On the other side of the coin is the Reserve Bank of Australia. Last week, the RBA hiked rates by 25bps, as expected, to bring the cash rate to 3.10%. The RBA statement said that more hikes are expected as inflation is too high. They expect inflation to peak around 8% this year and “a little above” 3% in 2023. However, although the RBA meets more often than many of its central bank peers, the markets are not pricing in another interest rate hike until April 2023. Therefore, the Australia Dollar has been weaker than other major currencies. Other central banks are expected to be much more aggressive when hiking rates compared to the RBA.

As a result of hawkishness from the ECB and the “less hawkish” comments from the RBA, EUR/AUD has gone bid. On a daily timeframe, EUR/AUD made a high print for the year of 1.6226 on February 4^th. The pair then traded aggressively lower and reached 1.4320 by April 5^th. After bouncing throughout the summer to 1.5398, the pair fell again and tested the previous lows on August 25^th, setting up a potential double bottom. The EUR/AUD bounced once again and took out the April 5^th highs on October 10^thnear 1.5397. The breakout set up a target for the double bottom near 1.6550. After breaking out, the EUR/AUD consolidated in a flag formation as the pair waited for its next catalyst to move hiker. The aggressive ECB on Thursday seems like that may have been it.

Source: Tradingview, Stone X

Trade EUR/AUD now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a 240-minute timeframe, EUR/AUD has formed a flag pattern near the breakout point of the double bottom. However, after Thursday’s hawkish ECB meeting, the pair broke aggressively higher and is on its way to the double bottom target. In order to get there, it must first pass through horizontal resistance at 1.6069, then the year’s high at 1.6226. The target for flag formation is just above there, near 1.6280. However, if EUR/AUD fails to continue to move higher, the first support level is at the December 7^th highs of 1.5749. Below there, price can fall to the top trendline of the flag near 1.5570, then the double bottom breakout level of 1.5397.

Source: Tradingview, Stone X

After the hawkish ECB meeting, the Euro went bid, including versus the Australia Dollar. With a double bottom target and a flag target above, the pair still has some work to do. If the RBA Minutes next week are dovish, watch for the pair to continue to move higher!

Learn more about forex trading opportunities.

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.