We’ve got upcoming manufacturing & services PMI data from both Europe and Australia, which could bring life to a sleepy market in EUR/AUD.
Intermarket Snapshot
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Fresh Market Headlines & Economic data:
- US existing home sales fell 1.7% in June, vs 0.2% drop expected
- FHFA House Price Index Up 0.1 Percent in May; Up 5.0% from Last Year
- Boris Johnson wins race to be Britain’s next leader
- IMF lowers global growth forecasts as trade, Brexit uncertainties persist
- Oil slips to around $63 as Iran concerns fade for now
- South Korean and Russian warplanes face-off in rare mid-air confrontation
- Bank of England’s Haldane ‘very cautious’ about cutting rates
- BOE Isn’t Tethered to Forecasts Suggesting Hikes, Saunders Says
- CBI’s latest quarterly Industrial Trends Survey: UK Manufacturing activity dropped in the quarter to July
- EU tells incoming British PM Johnson it won’t change Brexit terms
- RBA’s Kent Says Rate Cuts Containing Currency, QE a Long Way Off
- RBNZ to Refresh Unconventional Policy Strategy as Rates Drop
- Japan finance minister Aso: Government gained public trust for tax hike with election win
Upcoming Potential Catalysts on the Forex Calendar:
- New Zealand Trade Balance at 11:45 pm GMT
- Australia manufacturing & services PMI at 12:00 am GMT (July 24)
- Japan manufacturing PMI at 1:30 am GMT (July 24)
- Various European manufacturing & services PMI start at 8:15 am GMT (July 24)
- U.S. manufacturing & services PMI at 2:45 pm GMT (July 24)
What to Watch: EUR/AUD
Over the past few sessions, EUR/AUD went into snooze mode by sticking within a tight range between 1.5900 – 1.5950. This is likely due to euro traders sticking to sidelines ahead of what could be a potentially volatile ECB monetary policy meeting on Thursday, and on a lack of any recent major Australian / China news.
That could change soon as we get flash manufacturing and services PMI data in the upcoming Asia and European trading sessions, which are leading indicators of how an economy is doing and therefore likely to shift sentiment on a currency if we see any surprises.
Given that EUR/AUD is currently in a range, a consolidation-breakout play is likely the strategy to put on the watchlist, and the conditions for a bullish idea is an upside break of 1.5950 on positive European PMI updates vs. weak Australian PMI updates. This would be a counter trend move, so the actual numbers would have to be pretty far off from previous reads to get traders to make a play for a momentum bullish move.
For the bears, watch out for a downside break of 1.5900 on positive Australian PMI updates vs. weak European PMI updates, and odds are that this would have a higher probability of downside move gaining momentum given the longer-term price trend lower, and the idea that we will see ECB introduce more stimulative policies, while RBA officials are not likely to cut anytime soon as we just two Australian interest rate cuts this year already.
Outside of these scenarios, it could be more choppy price action, but if you do take action, keep in mind that the invalidation point should be set to the other side of the range and with a daily ATR for EUR/AUD in the range of 75 – 80 pips to set a reasonable target, you’ve got a pretty good short-term potential return-on-risk.