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