Amidst the recent dip in the Euro’s momentum following a milder-than-anticipated inflation report last week, the EURAUD currency pairing experienced a pronounced downward trajectory leading up to the Reserve Bank of Australia’s (RBA) interest rate announcement on Tuesday. In line with market expectations, the RBA’s decision maintained interest rates at 4.35%, marking a 12-year high.
The Australian dollar declined after the announcement of unchanged rates, as the RBA left the question of potential future tightening unanswered. Emphasizing a data-driven approach, the RBA acknowledged substantial uncertainty in both upside and downside outlooks. Consequently, market confidence in an imminent rate hike dwindled, resulting in a contraction of the Australian dollar and providing relief for the beleaguered EURAUD currency pair.
Technical
On the 4H chart, a descending channel has emerged. After the Eurozone inflation report last week, the channel looked destined for a breakdown, with the bears enforcing a shift of the price action below the dynamic resistance. However, support at 1.6267 underpinned a swift retracement, fuelled by the weakening of the Australian dollar, which now puts the channel resistance at risk of a breakout in the opposite direction.
The currency pair moved above the 25-SMA (green line) and is fast approaching the channel resistance. For a sustainable breakout, the pair may have to clear the 50-SMA (blue line) at 1.6520. If this level gets breached, the longer-term retracement could continue toward the Fibonacci midpoint and 61.8% Fibonacci golden ratio of 1.6559 and 1.6628 as we advance.
Alternatively, failure to clear the 50-SMA could see the prior downtrend continue. Support is established at 1.6456 and 1.6367 within the channel should the pattern continue. If the bears engage in another high-volume selloff, the neckline support at 1.6267 could be tested again to prevent a longer-term downtrend in the upcoming weeks.
Summary
As the RBA kept its interest rates unchanged while delivering commentary that tilted toward the dovish side, the EURAUD currency pair received a much-needed recovery in the Tuesday session. For the bullish rally to continue, the buyers may have to clear the 50-SMA at 1.6520 to trigger a sustainable trend reversal.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
