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Medium-term Trading Idea FX EUR/AUD - Bear Speculation: Breaking the Trend Line

Trading opportunity for currency pair: over the weekly period the candlestick is closing below the trend line. Taking into account the size of the QE program beginning 9th March, expect the euro to drop further. Thefirsttargetis 1.3235. If the euro/dollar reaches parity, look for movement towards 1.2618. The EUR/AUD will cease falling when there’s a growth higher than 1.45.

On Thursday the European Central Bank convened and kept interest rates as they were. The base rate was left at 0.05%, for deposits it’s minus 0.2% and the marginal rate is 0.3%.

Mario Draghi announced that 1.14 trillion euros would be spent on the purchase of state bonds, beginning 9th March and lasting until September 2016. The QE program should support economic growth and solve the deflationary problem. If necessary, the program will be extended. When Draghi said that the ECB, as part of the quantitative easing program, is prepared to purchase bonds even with negative returns no less than the Bank’s base rate (-0.2%), the euro hurtled downwards.

On Friday traders and investors continued to sell euros throughout the market. The fall hastened after 15:30 EET when the USA released strong data values on its labor market. February non-farm payroll employment in the US increased by 295,000 compared to a forecasted 240,000 increase. The January values for this indicator were reassessed from 257,000 to 239,000. The unemployment level dropped from 5.7% to 5.5%, whilst it was forecasted to be 5.6%. The average hourly wage increased by 0.1%, although forecasted to be 0.2%, previous 0.5%.

On the weekly timeframe the candlestick closed below the trend line. Now is the time to watch this pair. On Monday the EUR/AUD rate could slide to 1.4140 and over the next couple of months a drop, firstly to 1.3235, and then to 1.2818, is expected. At the moment there’s no fundamental factor that could lift the euro against the Australian dollar.

The ECB increased its forecast for 2015 GDP growth from 1.0% to 1.5%. We’ll see how the QE program works after the first quarter.

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Attention:

Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.

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