Can EURAUD stay below 1.60?

Aussie data releases came out mixed today, with building permits standing higher than expected, at a growth rate of 2.5% compared to expectations of 0%, while company gross operating profits for Q4 came out at 0.8% q/q, compared to expectations of 3%. In contrast, European news were relatively positive, as the PPI came out at 3% y/y, compared to expectations of 2.9%.

The EURUSD pair has been trading on a downwards trend since the market open today, breaking through the 1.6011 (Fib. 23.6%) but not successfully trading below the 1.60 level. The MAs suggest that the decline should continue, albeit the MACD and Stochastics indices suggest the possibility for a reversal, even though this may be premature at the moment. The RSI index is currently trading within its bands, not assisting with the direction. Data-wise, the publication of the AiG Performance of Services Index would be important, not so much because services are important determinants of the state of the economy in a country but mostly because it can set the tone on whether the RBA will consider commenting on lowering the policy rate tomorrow.

While there have been local news sources reporting that the next RBA rate move will likely be a reduction of interest rates, others point out that the probability of this taking place tomorrow is very low. It is thus highly likely that the RBA statement will be supporting a neutral tone for the time being, acknowledging that it is premature to raise interest rates, especially as inflation is actually spot on the usual “close to but below 2%” dictum, standing at 1.8% in January. Similarly, wages also increased by more than 2% per month, providing additional disincentives for a rate reduction.

As markets await the RBA statement, it should be borne in mind that the Fed´s “wait and see” mantra is getting more and more popular around the world.

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Dr Nektarios Michail

Market Analyst

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