Sell EUR/AUD on Headline Risk

EUR weakness resumed on Friday night.  As market fears over Spain rattled global equity markets, the EUR fell one and a half big figures against the USD. The resultant fall in EUR/AUD sets up a solid risk reward trade.

After surprisingly clear hints from the RBA that there will be a rate cut in May, subject only to a friendly CPI reading in late April, Australian interest rate markets are now pricing three standard cuts to interest rates over 2012. This re-pricing is a significant contributor to recent AUD weakness, along with fears for demand growth from China.

The re-emergence of European debt fears, despite major steps towards resolution, suggests that Europe may dominate financial news in the near term. Traders who believe the bearish AUD factors are reflected in current prices and are expecting further negative news from Europe, will no doubt be eying the EUR/AUD.

Here’s the daily chart from the Tracker platform:

The breach of support around 1.2625 gives an easy risk reward set up for today:

SELL EUR/AUD at current prices, stop loss above 1.2625


About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Forex, Market, Trading and tagged , , , , , . Bookmark the permalink.

13 Responses to Sell EUR/AUD on Headline Risk

  1. dv34 says:

    Hi Michael, i was just looking at this, any particular short target in mind? Personally I am looking to buy EURAUD betweem 1.2450, Stop 1.2380, T1 1.2694, T2 1.2820 Rew Risk to T1 = 3.4:1, T2 = 5.2:1 – based off daily support level + bullish gartley + monthly bullish divergence and morning star (outisde of 2stddev bollinger band) I think this has room up to 1.34ish longer term. Short term agree though, looks like going lower…

    • michaelmccarthycmc says:

      Hi DV – looking at the support around 1.2387 – will take profit in low 1.24 area if achieved….

      • dv34 says:

        Bril…. Nice trade Mike

      • dv34 says:

        Am looking USD strength short term just longerd USDJPY at 80.50 looking for targets around 81.55 and 83.29 if she starts running! so makes sense for EUR to weaken

      • dv34 says:

        Just revise my proposed trade buy at 1.2424 stop 1.2347 targets as stated above. R:R drops at little but support more clearly defined at these levels

  2. says:

    EUR/USD and AUD/USD have the same correlation. When EUR drop, AUD will usually follow. This is not advisable to trade this pair at this moment.

    • michaelmccarthycmc says:

      Thanks for your comments Ptrader. each trader makes up their own mind about suitable trades, but there is a case to trade EUR/AUD. The current daily 1 year correlation between EUR/USD and AUD/USD is 0.71 – on a scale of -1 to +1 this is a fairly strong relationship. However, the daily correlation since the start of the year is 0.61 – suggesting that the relationship is not as strong as it was. Additionally, one year volatility markets in EUR/AUD are around 11% – suggesting that option market makers are expecting some movement in this pair.

      All the best, Michael

  3. dd says:

    what is your target?

    • michaelmccarthycmc says:

      Hi DD – I’m looking at support around 1.2387 – will look to take profit in low 1.24 if it reaches that area

  4. Ezz says:

    Hiya Michael, I may have missed something but if there is a bearish outlook for the EUR/AUD and bearish sentiment for the AUD/USD would that not mean more downside if i were to short EUR/USD as the aussie dollar will be falling against the USD.

  5. says:

    Oop… Stop Loss Level hitted.

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