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Day two: our potential EUR/AUD trade

Having looked at short EUR/AUD trades from 1.4525, the pair has got off on the right foot and is headed in the right direction. 

Euro
Source:Bloomberg

Following on from my potential trade idea yesterday, the pair fell to a low of 1.4440 in the European session, but has since recovered a touch. As seen on the hourly chart below, EUR/AUD is a little oversold and could undergo a short-covering rally, however the market should be keen to sell into this potential move and I can’t see strong upside.

While there was some selling of the different peripheral bonds, EUR has also continued to find sellers, with talk that money managers are actually seeing the cut to negative deposits as a dovish development. Recall Denmark embarked on negative rates in July 2012, however this had mixed results and didn’t really cause too much in the way of selling of the krona.

The measures imposed by the ECB last week have been met with some scepticism that it will promote credit expansion and ultimately inflation and I would tend to agree, however the impact the measures have on assets could surprise the cynics.

I maintain my potential short idea, with stops unchanged for now.

EUR/AUD
IG Charts

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