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EURAUD: Downside Extends, Terms of Trade Could Provide Next Leg for AUD

EURAUD
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  • The EUR/AUD downtrend extended this morning with another lower low printed at 1.6058 - extending the losing streak to 14 of the past 17 sessions - narrowing the gap with key support and the bear trigger at the cycle low of 1.5998.
  • We wrote yesterday that spot AUD's rally in recent weeks has been driven by aggressive short-covering - the improvement in the net position off the deep net short in mid-March has been the most acute since 2014. Now the short-covering tailwind has likely concluded and China stimulus news appears largely priced in, AUD bulls will need to pick up fresh catalysts for a push through 1.60 in EUR/AUD.
  • That said, terms of trade could play a bigger part on any next leg higher for AUD - beneficial export prices have pushed terms of trade to the best levels of the year so far - and any further progress will likely stem from iron ore prices, which followed China equities with a >15% rally in recent weeks.
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  • The EUR/AUD downtrend extended this morning with another lower low printed at 1.6058 - extending the losing streak to 14 of the past 17 sessions - narrowing the gap with key support and the bear trigger at the cycle low of 1.5998.
  • We wrote yesterday that spot AUD's rally in recent weeks has been driven by aggressive short-covering - the improvement in the net position off the deep net short in mid-March has been the most acute since 2014. Now the short-covering tailwind has likely concluded and China stimulus news appears largely priced in, AUD bulls will need to pick up fresh catalysts for a push through 1.60 in EUR/AUD.
  • That said, terms of trade could play a bigger part on any next leg higher for AUD - beneficial export prices have pushed terms of trade to the best levels of the year so far - and any further progress will likely stem from iron ore prices, which followed China equities with a >15% rally in recent weeks.