The EURAUD has been the beneficiary of the recent anti-carry trade rout, but signs of weakness at a falling trendline suggest that the pair may nonetheless continue its downtrend. Indeed, continued failure at 1.6155 leaves risks to the downside through the short term and provides opportunity to play the established range.
[B]Trading Tip - The EURAUD has been the beneficiary of the recent anti-carry trade rout, but signs of weakness at a falling trendline suggest that the pair may nonetheless continue its downtrend. Indeed, continued failure at 1.6155 leaves risks to the downside through the short term and provides opportunity to play the established range. Our previous analysis on August 1st remains largely unchanged, with our proposed limit sell at 1.6130 triggered two days later. We still fell confident in the trade and maintain that our profit target remains feasible. Notable event risk is relatively limited out of the Euro Zone, but keep an eye out for the upcoming Reserve Bank of Australia interest rate decision. If the trade is profitable ahead of the key event, the range trader may opt to take a smaller profit or tighten stops ahead of the release. Uncertainty surrounding the RBA meeting will undoubtedly leave the Australian dollar to big moves against major counterparts, hurting the profitability of potential range trades.[/B]
[B]Event Risk Euro-zone and Australia[/B]
[B]Euro-zone[/B] - Fundamental data out of the Euro-zone will be relatively limited this week, with only Germany reporting some mildly note-worthy data. Factory orders are estimated to fall on a monthly basis, but the annualized rate of growth should pick up significantly, in line with anticipated improvements in industrial production as well as the German trade surplus. While slower US economic growth may be leading demand for German products to decline, purchases from within the Euro-zone and in Asia will help keep the balance afloat.
[B]Australia[/B] - Event risk in Australia will be thin until next Tuesday, when the Reserve Bank of Australia will announce their rate decision. Given the stronger-than-expected inflation report we saw for the second quarter, hot retail sales, and tightening labor market conditions, estimates are now set for a hike by the RBA to 6.50 percent. Given their slow and steady policy tightening scheme witnessed over the past two years, there is the potential that additional rate hikes loom on the horizon for the RBA, which would help maintain any Aussie bid tone following a rate increase on August 7th. On August 8th, labor market reports may also help support the national currency, as the unemployment rate should hold near its 33-year lows.
[B] Data for August 6 - August 12 Data for August 6 - August 12
Date Euro-zone Economic Data Date Australian Economic Data
[/B] Aug 6 German Factory Orders (JUN) Aug 7 RBA Rate Decision (AUG)
Aug 7 German Industrial Production (JUN) Aug 8 Employment Change (JUL)
Aug 8 German Trade Balance (JUN) Aug 12 RBA Monetary Policy Statement