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It’s hard to be long EUR/USD at the moment, particularly knowing that June action by the ECB is almost certain. Most importantly the pair closed below an uptrend line which has been in place since July 2013 and came in around 1.38. This opens it up for further losses in the near term and given Draghi also commented on the strength of the exchange rate, gains are likely to continue being capped in the near term.
Additionally, uncertainty from the Russia/Ukraine situation won’t help matters. Referendum went through without an incident and focus now switches to the May 25 presidential election while nations step up sanctions on Russia. With plenty of uncertainty in store for the EUR, we could see further downside in the pair in the near term.
AUD focuses on budget
AUD/USD is currently sidelined at 0.936 after testing 0.94 on Friday. There isn’t much going on today apart from NAB business confidence due out at 11.30am AEST which might have a limited impact. Following the RBA’s statement on monetary policy, some analysts feel the change in language from ‘a period of stability in policy is likely’ to ‘ the current accommodative monetary policy setting is likely to be appropriate for some time’ is a strong indicator of the RBA’s stance.
In addition, the fact that fiscal policy is likely to be tightened by around a quarter percent of GDP, then the RBA is likely to be forced to remain steady. Deutsche Bank actually feels 2014 and 2015 will pass with no change in rates. Meanwhile China is adapting to a new normal in a slower pace of economic growth. There will continue to be concerns around iron ore plays after the commodity dropped to 102.70. Iron ore is languishing at 2-year lows and could be testing 100 as early as this week.