The EURAUD rallied by +1.20% early Friday morning after ECB signalled a hawkish outlook in the near term. The pair is trading at the critical resistance after the annualized Eurozone HICP rose by 8.6% in June vs. the previous reading of 8.1%, the latest data published by Eurostat showed early Friday. The market expected the inflation data to accelerate by 8.4% hence reinforcing further tightening by the ECB.
The Eurozone Manufacturing PMI showed steady growth in June. The Italian Manufacturing PMI beat expectations rising from 50.5 to 50.9, while Spanish and French data also indicated mounting inflationary pressure.
However, the positive Chinese Caixin Manufacturing PMI is a major headwind for EURAUD buyers in the near term. The Manufacturing PMI rose from 50.1 to 51.7, indirectly could boost the commodity-backed pair. The optimism around China’s relaxing of lockdown measures could help improve Australian dollar sentiment in the near term.
Investors are keenly watching the RBA policy meeting as it’s expected to hike rates by 50bps from 0.85% to 1.35% on the 5th of July.
Medium Term Analysis
The EURAUD bulls managed to recover modest gains from the 1.45000 support and upside gains are currently capped with the 1.5350 resistance. A break above that current resistance could open the way for a further rally towards the 1.62000, 9-month high. The MACD indicator is currently trading above the 0.000 benchmark suggesting bullish momentum to the upside.
However, a failure to break above the 1.5350 level, coinciding with a 200-day moving average could see the pair shading off some of its gains towards the 1.5000 psychological level. If bears manage to breach the 1.5000 level, further downside pressure could be experienced in the near term towards the 1.4800 and 1.4500 levels.
The ActivTrader Sentiment tool indicates that 59% of retail traders are bullish on the EURAUD pair. Investors are pricing in a 50bps hike by the ECB at its July policy meeting. ECB president Lagarde indicated that the major aim is to achieve price stability in the Eurozone without choking economic growth. The Eurozone Preliminary Inflation surged to 8.6% YoY in June from 8.4% surveyed reinforcing further tightening by the ECB.
However, positive Chinese PMI data could cap EURAUD gains in the medium term as it is a major tailwind for the Australian dollar’s strength. The RBA is also expected to lift its interest rates by 50bps on the 5th of July in a bid to curb soaring inflation.
The EURAUD bulls managed to break above the 1.5340 after bouncing off a 1.5060 support on Thursday. The bulls may target the 1.54000 psychological level in the near term. The RSI indicator reading is currently trading above 50.00 suggesting increasing bullish momentum in the near term. A break above the 1.54000 level could open the way for rising towards the 1.5470 level.
However, a failure to hold above the near-term high could cause a price correction towards the 1.51700 level, coinciding with the 50-day moving average. A break below the 1.5050 support could invalidate the bullish outlook in the near term and bears may target the 1.4500 support, a 2-week low.