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14 Feb 2014
Flash: EUR/AUD should head lower - TDS
FXStreet (Bali) - According to Annette Beacher and Prash Newnaha, FX Strategists at TD Securities, there are three key reasons for the EUR/AUD cross to head lower.
Key Quotes
"TD’s long held view is for the RBA to hike rates in 2014 but for the ECB to remain on hold. While the view on the ECB is consensus, the outlook for the RBA is not, but judging by market pricing, market thinking is changing. Last week the RBA shifted its guidance on rates to rule out further easing. However this is not something the market can rule out for the ECB."
"Until two weeks ago, the number of AUD short contract positions held by non commercials was near extreme historic levels. These positions still remain large, but most recent data shows the number of AUD shorts being trimmed, no doubt the RBA shift on rate guidance serving as a trigger. In contrast, non commercials have just established EUR shorts but the change has not been substantial, which leaves the non commercials net long EUR in a relative sense vs the AUD. We expect divergent outlooks for central bank policy and fundamentals outlined above to gradually see current non commercial net positions to gradually reverse in favour of the AUD."
"In August last year 1.50 served as strong resistance on two occasions and since January has held as strong support on two instances. This 1.50 level also coincides with trend line support stretching back to the April lows last year. We anticipate a break in this level will not be a case of ‘if’, but a case of ‘when’."
Key Quotes
"TD’s long held view is for the RBA to hike rates in 2014 but for the ECB to remain on hold. While the view on the ECB is consensus, the outlook for the RBA is not, but judging by market pricing, market thinking is changing. Last week the RBA shifted its guidance on rates to rule out further easing. However this is not something the market can rule out for the ECB."
"Until two weeks ago, the number of AUD short contract positions held by non commercials was near extreme historic levels. These positions still remain large, but most recent data shows the number of AUD shorts being trimmed, no doubt the RBA shift on rate guidance serving as a trigger. In contrast, non commercials have just established EUR shorts but the change has not been substantial, which leaves the non commercials net long EUR in a relative sense vs the AUD. We expect divergent outlooks for central bank policy and fundamentals outlined above to gradually see current non commercial net positions to gradually reverse in favour of the AUD."
"In August last year 1.50 served as strong resistance on two occasions and since January has held as strong support on two instances. This 1.50 level also coincides with trend line support stretching back to the April lows last year. We anticipate a break in this level will not be a case of ‘if’, but a case of ‘when’."