4 Jul 2013
Flash: A bearish case for EUR/AUD - ANZ
FXstreet.com (Barcelona) - The risks for EUR/AUD have shifted to the downside, making it a better risk-reward idea entering short at 1.4280, with view wrong if 1.4460 taken out, with taking profit at 1.3530, says Andrew Salter, FX Strategist at ANZ.
As Salter explains, on one hand, fundamentals are still clearly against the AUD: "Chinese growth, commodity prices, the RBA, and the FOMC, all point in one direction." However, for some crosses, "the balance of probabilities is shifting materially, being especially the case for EUR/AUD" Salter says.
Salter adds: "The recent rally in EUR/AUD has been driven purely by the speculative and private real money communities. Central banks do not change their allocations in the space of a few months." Salter reminds that from 2007 onwards "it was almost exclusively the central bank community that drove the EUR/AUD cross from around 1.70 to the lows of 1.18 in 2012."
Half of this move has been retraced, and that is mainly due "to positions in the speculative community being extremely short, or that the real money community is heavily underweight, or both" Salter said, adding that "the recent rally is inappropriately large, and positioning must be over-extended and concentrated in those investors that are most prone to mark-to-market constraints."
As Salter explains, on one hand, fundamentals are still clearly against the AUD: "Chinese growth, commodity prices, the RBA, and the FOMC, all point in one direction." However, for some crosses, "the balance of probabilities is shifting materially, being especially the case for EUR/AUD" Salter says.
Salter adds: "The recent rally in EUR/AUD has been driven purely by the speculative and private real money communities. Central banks do not change their allocations in the space of a few months." Salter reminds that from 2007 onwards "it was almost exclusively the central bank community that drove the EUR/AUD cross from around 1.70 to the lows of 1.18 in 2012."
Half of this move has been retraced, and that is mainly due "to positions in the speculative community being extremely short, or that the real money community is heavily underweight, or both" Salter said, adding that "the recent rally is inappropriately large, and positioning must be over-extended and concentrated in those investors that are most prone to mark-to-market constraints."