Fundamental Analysis of EUR/AUD for February 7, 2019

EUR/AUD has been extremely volatile and corrective while residing below 1.60 area recently. The Reserve Bank of Australia maintained the official cash rate unchanged at yesterday's policy meeting and released an indecisive statement. As a result, AUD failed to attract market sentiment, thus enabling EURO to gain ground despite the ongoing headwinds from the eurozone.

AUD used to be the dominant currency in the pair since the biggest rejection with a daily close below 1.6350 area in early January 2019. The recent dovish statement from RBA Governor Lowe alongside the unchanged interest rate resulted in sour experience for the AUD bias in the market. Recently Reserve Bank of Australia Governor Phillip Lowe stated that Australia's interest rate can move in either direction, though it is expected to move lower with a greater probability. The decision on interest rates depends on the strength of the labor market and inflation. The RBA has been keeping the interest rate unchanged at 1.50% on the grounds of relevant economic data. Besides, the board thinks that at present the domestic economy is more balanced and does not need sharp moves of interest rates. Moreover, recently a retail sales report was published with a decrease to -0.4% from the previous value of 0.5% which was expected to be at 0.0% and a trade balance report was published with an increase to 3.68B from the previous figure of 2.26B which was expected to decrease to 2.25B. Ahead of RBA Monetary Policy Statement tomorrow, AUD is expected to be quite weak. Besides, any negative outcome of the report is expected to lead to further weakness of AUD.

On the other hand, the ECB has been taking measures before the BREXIT triggers turmoil in the eurozone's economy in the short term. Currently the ECB is preparing the European banks to endure better during a run on their crash under a new stress test. It aims to measure the survival period of the banks which will focus on the bank's short-term cash flows to calculate the survival period. Moreover, the European Commission is going to slash its 2019 growth forecast for Italy to 0.2% from its 1.2% estimate given in November. The growth reduction is expected to hamper EUR's gains, but till then EUR may lead further in the pair.

Now let us look at the technical view. The price is currently residing at the edge of 1.60 area which if broken above with a daily close is expected to lead to further bullish momentum with a target towards 1.6350 resistance area. If the price continues to remain below 1.60 area, the bearish pressure is expected to continue.

SUPPORT: 1.5850, 1.5900

RESISTANCE: 1.60, 1.6350

BIAS: BEARISH

MOMENTUM: VOLATILE

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