EUR/AUD – ECB Policy Review

#OPINIONLEADER# #Signal#

 JUL 9, 2021

• ECB now targets inflation at 2%
• Rise in COVID case led to lockdown extension in Sydney
• Potential upside in EUR/AUD beyond 1.60 handle

Chart 1: EUR/AUD D1 chart

During the European Central Bank policy review that took place yesterday, the central bank revised its inflation target to 2% and also allowing inflation to overshoot that level. The ECB mentioned that temporary deviation of inflation from target is fine but prolonged deviation will require actions from the central bank. This revised policy will allow the ECB to raise their inflation forecast, translating to a softer policy stance. Euro strengthened as a result of the new policy.

(Refer to today’s Currency Call for my coverage on the ECB policy review.)

In Australia, the outbreak of the Delta variant of COVID-19 has led to the return of lockdown restrictions in New South Wales. The recent rise in the number of cases led to an extension of the two-week lockdown by a third week. The Australian dollar took a hit by the virus concern and weakened.

At the moment, EUR/AUD is facing an obstacle, the 1.60 handle. A breach above this handle may lead to further upside, presenting buying opportunities.

Trade Setup for EUR/AUD (D1)

Buy Stop at 1.60300

Upcoming major news that may impact price movement of EUR/AUD

09 July – ECB President Lagarde speaking at 1800 (GMT+8)

09 July – ECB monetary policy meeting minutes release at 1930 (GMT+8)

09 July – G20 meetings

10 July – G20 meetings

14 July – Westpace Consumer Sentiment data release at 2030 (GMT+8)

15 July – Australian employment data release at 0930 (GMT+8)