HSBC Global Research has revised its stance on the EUR-AUD pair, setting lower target and stop-loss levels for its sell trade idea.
On the other hand, the company revised its target down to 1.5690 from its initial position that it opened on September 20 at 1.6400. Stop loss has also been tightened to 1.6150.
The decision comes in the wake of a series of negative data from the Eurozone, which has continued since the inception of the trade idea. Market expectations currently lead to a 25 basis point interest rate cut by the European Central Bank (ECB) in October.
However, more dovish signals consistent with ECB President Lagarde’s comments on September 30 could lead to additional market adjustments. Speculation is brewing that cuts could reach 50 basis points if the current trend continues.
Financial concerns in the euro zone are putting pressure on the euro, as evidenced by the persistently wide spread between 10-year French government bonds and German Bund yields. These factors contribute to the bearish outlook for the Euro against the Australian Dollar.
In contrast, the Reserve Bank of Australia (RBA) is expected to maintain its current policy stance while other central banks ease their policies.
HSBC economists also expect additional policy stimulus from China, which is likely to benefit the Australian dollar. With terms of trade shifting in favor of the Australian dollar, HSBC analysis indicates that the currency will perform better than the euro.
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