EURAUD Stands Out During Quiet Week

It’s been a much quieter week for financial markets. Though do bear in mind I’m writing this ahead of today’s Jackson Hole event. Given the focus on Fed chairman Powell’s speech today, markets have been somewhat held hostage over the week. Still, there have been some interesting moves and as is always the case in FX, while one pair is sleeping, another pair is on the move. Chatting with traders ahead of the long weekend here in London, it seems the main move capturing attention has been the more than 2% drop in EURAUD which saw the pair breaking down to fresh 2022 lows. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.

What Caused the Move?

Risk On Fuels AUD Rally

There have been two sides to this week’s move. The first, is the broad risk-on tone to markets which has helped lift sentiment in AUD. With USD softening over the early part of the week, risk assets across the board were seen higher. Given AUD’s link to commodities prices, the currency tends to outperform during pro-risk market phases. With equities and commodities prices rebounding firmly amidst the USD lull, AUD was seen as one of the strongest performers in FX this week. Additional stimulus in China helped feed into this narrative. Given China’s status as Australia’s largest trading partner, injections of liquidity there typically help lift AUD on expectations of increased demand for Aussie exports.

EUR Under Pressure Over Growth Concerns

Along with the rise in AUD this week, EUR has remained under pressure. Following last week’s heavy losses, the single currency was seen clinging to recent lows as investor attention was diverted elsewhere. Fears over the health of the eurozone economy amidst the ongoing Russia-Ukraine war are keeping sentiment anchored firmly to the downside. A hawkish set of ECB minutes mid-week did little to lift the currency, simply adding to the growth fears which are mounting on the back of a set of weaker-than-forecast Eurozone GDP figures this week. It will be interesting to see how the pair trades on the back of today’s Jackson Hole event which threatens to cause wide-spread volatility into next week.

Technical Views

EURAUD

The pair is currently testing below the 2022 lows around the 1.4330 level. With both MACD and RSI bearish here, and with the pair still within the broad bearish channel which has framed price action this year, the focus is on a break lower and a further move down towards the next big support at 1.3696.