The latest eurozone purchasing managers’ indices, released this morning, were better than expected. The headline eurozone services sector PMI rose to 53.1 from 52.2 last month while the manufacturing PMI edged up to 53.3 from 53.0 previously. Significantly for the single currency it was Germany, the euro area’s economic powerhouse, where private sector activity accelerated most notably, with both of its sector PMIs hitting two-month highs. The French PMI readings, which had come out earlier in the day, were below expectations however.
Nevertheless, investors have cheered the news, and as a result the euro has climbed against nearly all currencies, mostly notably the Australian dollar. The Aussie meanwhile has been among today’s worst performers. It has been hit by a double whammy of a slightly weaker-than-expected Chinese manufacturing PMI and also the not-so-hot inflation data from Australia. Although the latest reading of HSBC’s PMI survey on Chinese manufacturers climbed to 48.3 from 48.0 in March, this was still below the expected increase of 48.5. Consumer prices in Australia increased by 0.6% q/q and 2.9% y/y, both measures missing estimates of 0.8% and 3.2% respectively. Trimmed mean CPI also missed expectations, rising 0.5% q/q compared to forecasts of 0.7%. The weaker inflation readings make the RBA’s job of sitting on the side-lines slightly more comfortable and they can justify maintaining their 2.5% record low rate of interest for the foreseeable future.
Technical view
The EUR/AUD’s response to the abovementioned data has been a 200-pip rally. In the process, it has taken out resistance at 1.4835/40 which is now likely to turn into support. The cross had already found a base of support around the 61.8% Fibonacci retracement level of the last notable upswing at 1.4730. For as long as it remains above here on a daily closing basis, the bias would thus remain bullish – even if it were to break back below the 1.4835/40 level. The crossover on the daily MACD is also a bullish outcome. However, the upside could be limited in the near-term with resistance seen at 1.4950 first and then at 1.5035. These levels were formerly support and/or resistance. But if we get beyond these levels then we could well see some more profound gains although that obviously depends on price action and economic news at that time. It is worth watching a bearish trend line which comes in somewhere above the 38.2% Fibonacci level (1.5100) of the downswing from the January high (1.5830) which may also offer some resistance. In short, although the near-term technicals have seemingly turned bullish, it is best to be nimble when trading this pair – particularly while it remains below the long-term pivotal level of 1.5035.
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