EUR/AUD poised to breakout

July 20, 2018 10:12 AM

Notwithstanding President Trump’s daily twitter condemnations (trade partners and the Federal Reserve drew his ire this morning), traders have started to look ahead to next week’s trade. The marquee economic events impacting next week’s FX market will likely be Australia’s Q2 CPI reading in Wednesday’s Asian session and Thursday’s European Central Bank meeting.

Tackling the inflation report Down Under first, economists are expecting a +0.4% quarter-over-quarter print, in-line with last April’s reading. While the report may have little immediate policy impact, traders are currently pricing in about a 10% chance of a rate hike from the RBA by the end of the year, so a stronger-than-expected reading could boost both that figure and the Aussie itself.

Speaking of little immediate policy impact, next week’s ECB meeting may be less significant than many of the other recent confabs. Since ECB President Mario Draghi dashed hopes of a rate increase in early 2019 last month, the Eurozone has seen a disappointing revision to core inflation and an increase in hawkish trade talk; in other words, the ECB is unlikely to have grown more optimistic over the last six weeks. Be sure to watch for our full coverage of the ECB meeting as we move into the middle of next week!

Technical View: EUR/AUD

Given next week’s major economic events in Australia and Europe, euro/Aussie (EUR/AUD) currency pair is likely to see an increase in volatility… which is great news for traders, as the pair has been trapped in a 180-pip range for nearly a whole month now. Yesterday, rates dipped down to test the bottom of the recent range around 1.5700 before bouncing back strongly, while today’s seen the polar opposite price action, with the pair testing 1.5880 resistance before reversing back to the middle of its range as of writing.

One way or another, a breakout from this range is in play next week. A confirmed bullish breakout could open the door for a continuation toward the minor highs near 1.5970 and eventually the longer-term resistance levels above 1.6100. Meanwhile, a bearish breakdown could expose the Fibonacci retracements of the June rally at 1.5580 (50%) and 1.5510 (61.8%).

About the Author

Senior Technical Analyst for FaradayResearch. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, he creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Weller is a Chartered Market Technician (CMT) and a member of the Market Technicians Association.