- EUR pounded on dismal eurozone economic fundamentals.
- The focus today will be on RBA Governor Lowe’s speech.
EUR/AUD dropped overnight following a breakdown in the euro on very poor Eurozone PMIs. EUR/AUD is currently trading at 1.6225, flat n the Asian session, although licking its wounds following a drop from overnight highs of 1.6285.
The culprit in the drop came in the Markit’s flash September Eurozone manufacturing PMIs which fell to 45.6 (est. 47,2, prior 47.0). Services, which have been the backbone to the economy, were also weaker than expected at 52.0 (est. 53.3, prior 53.5) and so the composite was dragged down to 50.4 (est. 52.0, prior 51.9).
“The accompanying write-up stressed the deterioration within the region’s economy, with weak manufacturing (described as in a “deepening recession”) now impacting services and seen as increasing pressure on the ECB to add to its recent stimulus,” analysts at Westpac explained. “The weakness in the region reflected softer than expected French PMIs but also markedly weaker German readings (man. 41.4, services, 52.5, comp. 49.1).”
The European Central Bank had delivered on all policy fronts but the markets were looking for more and data such as this is cementing the case for further rate cuts and on a steadfast Federal Reserve, the euro could be in for a pounding which in turn leaves the outlook bleak for the cross.
All eyes now in the RBA
However, the Reserve Bank of Australia should also be considered, and perhaps that is the untold story here and a spanner in the works for the bears. Indeed, the focus today will be on RBA Governor Lowe’s speech, An Economic Update where the governor speaks at a dinner at the Armidale City Bowling Club (rural NSW), from 8:05pm Syd/6:05pm Sing/HK. “Market pricing for a cash rate cut to 0.75% a week from today rose from 25% to 80% over the course of last week in response to the Sep minutes and the 12 month high on the unemployment rate in Aug. So a dovish tone is very much priced in but Lowe might not tip his hand as explicitly as in the May speech ahead of the June rate cut,” analysts at Westpac argued.
EUR/AUD levels
The cross has been unable to maintain form on the bid following a series of bullish days which reached a peak of ahead of a 50% mean reversion of the 7th August to 12th September lows and failing to break onto the 1.63 handle. However, should a cup and handle take shape, bulls could be on the verge of a rally towards the 1.6450s which will meet the Jun highs. Beyond the June highs, bulls can target the August spike highs of 1.6787. On the downside, should trade war talks gain traction again and positive momentum, the 200-day moving average falls in at the 1.6060s which meets trend line support.
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