Euro, Australian Dollar, EUR/USD, ECB, RBA, Stocks – Analyst Pick
- Euro at risk to Australian Dollar as ECB, RBA downplay bond yields
- Majors-based EUR index & EUR/AUD trading within falling channel
- A near-term rise may prove to be short-lived as key downtrend holds
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The Euro may remain at risk to the growth-linked Australian Dollar as market risk appetite holds generally upbeat. Over the past 24 hours, the European Central Bank stepped up its pandemic emergency purchase programme (PEPP) in response to rising nominal government bond yields. The latter poses a risk to equities as it tends to inspire portfolio reallocations, from large financial institutions to general retail traders.
ECB President Christine Lagarde noted that if left unchecked, these rates could result in premature tightening, undermining economic recovery bets. This is as Reserve Bank of Australia Governor Philip Lowe cooled rising medium-term hawkish bets as markets priced in rate hikes late next year and again in 2023. As such, this may help keep a supportive environment for equities, something that the Aussie would likely benefit from.
On the daily chart below is a majors-based Euro index, averaging its performance against the US Dollar, Japanese Yen, British Pound and Australian Dollar. The Euro index has been in a dominant downtrend since December, falling within a Descending Channel. Recently, prices took out lows from late May 2020, though follow-through has been somewhat lacking.
Positive RSI divergence has emerged, which is a sign of fading downside momentum. This may precede a turn higher, but the dominant decline may remain intact as the ceiling of the channel holds as pivotal resistance. As such, the Euro may make its way down to its average cheapest price since April 2020 down the road. A push above the channel would however open the door to a broader reversal.
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Majors-Based Euro Index – Daily Chart
Chart Created in TradingView
EUR/AUD Technical Analysis
EUR/AUD also continues to trade within a Descending Channel, having tested the ceiling in late February. The pair may make its way down to the February low which also sits just above the bottom achieved in 2018. As such, this could make for a key support zone between 1.5156 and 1.5262.
Falling under it exposes the 100% Fibonacci extension at 1.4997. On the other hand, a climb to channel resistance may place the focus on the 23.6% level at 1.5528. A push above it exposes the February 26th high, where a daily close above it may open the door to a broader reversal.
Fibonacci retracements and extensions can be applied to a variety of markets to find key technical levels
EUR/AUD – Daily Chart
Chart Created in TradingView
— Written by Daniel Dubrovsky, Strategist for Finance Prop.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter