Strategy
Buy EUR/AUD at 1.6330. Stop at 1.5990 and target at 1.7350 on a 6-month outlook.
Technical View
After hitting a high at 1.9787 on 15 Mar 2020, price declined to a low of 1.6027 in late May 2020. For eight weeks after the low, price has managed to stay above this low and this could be a base building consolidation. Price is currently closer to this eight-week range’s high and a break out above 1.6540 would confirm the low in place. MACD had reached a low and is turning up from that low point, although MACD is still bearish. Stochastic is also turning up from the oversold extreme. These two momentum indicators are hinting of a price low and a likely rally going forward which is likely to bring price higher.
Fundamental View
The European Commission has managed to secure a landmark agreement from its many member states to create a recovery fund of Euro750 million to aid weaker nation in their fight for economic recovery against the coronavirus pandemic. The landmark deal was a major step in fiscal cooperation among members’ nations. This fund has also renewed demand for European assets.
Another sign of a recovery for the Eurozone is in their Services PMI. This has managed to move above 50 which is a sign of expansion in economic activity. After 4 months below the 50 mark, which is a sign of activity contraction, PMI has crossed over into the expansion zone, in a sign of economic pickup in the Eurozone.
Australia on the other hand is experiencing a souring of ties with China, which is its biggest trading partner. First over Huawei and recently over China’s claims over the South China Sea, a souring of tie is likely to result in a boycott of purchases from its biggest trading partner. This could impact Australia GDP and eventually the value of the Aussie dollar.
Sino-U.S. tensions, first over Hong Kong and recently over the closing of consulate in Houston are likely to result in tit for tat. An increase in tension is likely to weigh on the Aussie dollar, which is also a proxy for the China’s yuan. Worsening Sino-U.S. relation is likely to lead to a weaker yuan and Aussie is likely to be dragged lower by it.