We’ve got a big catalyst for the AUD right around the corner, making the longer-term downtrend in EUR/AUD one to watch for potential trade opportunities. Will the RBA keep the sell momentum going?
RBA to Keep the Downtrend in EUR/AUD Going?
Downtrending charts don’t get much cleaner or more textbook than the four hour chart of EUR/AUD above. The pair has been in a serious downtrend since mid-September, likely on speculation that the Reserve Bank of Australia will have to tightening monetary policy sooner than previously expected due to high inflation.
This is a very different situation than the euro as Europe has see economic growth slow over the past month, as well as experience energy and supply chain issues, lowering the odds significantly that the ECB will take tightening action on monetary policy to combat their inflation issues.
Well, we’re going to hear from the RBA very soon as they will give their latest monetary policy statement in the upcoming Asia session at 3:30 am GMT. Expectations are for the RBA to hold on policy, but may get more hawkish on the time of its possible rate hike, currently expected in 2024.
Now, after a massive run to the downside like we’ve seen in EUR/AUD (from 1.6237 to 1.5360, a roughly 5.35% move), it’s perfectly normal to expect a “buy-the-rumor, sell-the-news” scenario may play out, as some traders would likely take some profits no matter what the RBA says. If we get the expected scenario of no policy moves and hawkish rhetoric from the RBA, then a pop higher after the event is one to watch for a potential opportunity to jump in the downtrend at better prices, possibly around the falling trendline or previous strong area of interest around the 1.5500 major psychological level.
We also have to be open to the possibility of a downside break of current support if the RBA does sound hawkish, and if the market does break lower, we’ll be on the lookout for sustained trade below that 1.5350 area before considering setting up a short position.
In the low probability scenario where the RBA maintains no rate hikes until 2024 or beyond (possibly on covid fears or export weakness due to falling demand or supply chain issues), then that raises the probability of a swing move to the upside developing pretty quickly. In that scenario, we’ll be on the lookout for a sustain break above the falling trendline and 1.5500 level before considering a short or swing term position long.
What do you all think? Will the RBA keep the Aussie bull train going?
