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FxWirePro: Sell euro against Aussie for 1000 pips reward

Since April, the single currency has risen by almost 10.6 percent riding on diminishing political risk-premium on the victory of Emmanuel Macron in the French election and a change in easing stance by the European Central Bank (ECB), which is looking at ways to reduce its accommodation. Since May this year, the Australian dollar has risen by 8.7 percent riding on recovering commodity prices, especially iron ore, a weaker dollar and expected change in stance in monetary policy that is yet to take place.

While both of these currencies are enjoying a bull run against the dollar, there does lie opportunities in this cross currency pair; EUR/AUD. While the financial market is speculating on the change in the stance of the ECB, it is important to note that the current monetary policy pursued by the European Central Bank (ECB) is deep in the dovish territory. The deposit rate is currently being maintained at -0.4 percent, while the interest rate maintained by RBA is at 150 basis points. It is also worth noting that ECB is unlikely to abruptly end its asset purchase program when it expires in December this year. It is more likely that a reduction will be pursued. At one point, the market will take notice of that.

With such view, we would like to recommend selling the euro against Aussie at the current rate of 1.46 with a target around 1.36. Due to speculative noise in the market, we would recommend a higher stop loss around 1.51 for the moment.

Kindly note, trend lines are drawn based on closing price and maximum penetration.

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