Forex: EUR/AUD, buying opportunities on RBA? beware cut priced in

FXstreet.com (Barcelona) - EUR/AUD has enjoyed a 3-day winning streak enough to send the price firm above the 1.25 handle ahead of the RBA rate decision later today. The recent inequality between Euro buyers and Aussie sellers has been notorious, as Spain/German yield spreads continue to narrow and the futures market prices around 90% chances of an RBA cut.

Joining the Euro at current levels may not offer traders a great risk reward ratio since first troubling area north is seen 40/50 pips overhead at 1.2560 up to 1.2580, sequence of low from mid October. On the downside, meanwhile, the first area of value to reinstate bids is found around 1.2490, Monday's European low, ahead of stronger 1.2450/50 support, late Oct lows.

Despite technical point to either higher levels or consolidation above 1.2455 in the days to come, the potential big mover today should be the Australian Dollar should the RBA throw yet again another bombshell by either holding rates - just like it did last month - or even a cut with a 'not so dovish' statement may do the trick - the cut seems to be priced in almost entirely -. Bulls on the pair should rely on a cut + further easing projections at the next RBA meeting on Feb to blow 1.2560/80 resistance.

Raghee Horner, chief currency analyst for IBFX, looks at a price movement range from 23 pips to 36 pips as the RBA releases their rate statement. "This makes 36 pips the 'striking distance' for any trade I will look to enter at the release..."

Ms. Horner notes: "The 60-minute chart would trigger a conservative swing buy at the 34 period EMA high which is currently at 1.2507. I like the entry with the 1.2500 major psychological level at my back as support. Contrast this entry to the 240-minute time frame which would not trigger an entry long until 1.2467 which would require a sustain follow-through lower and a pullback much higher than the price movement range would suggest."

"If you are looking for a 'catch the wick' set up on extreme volatility, it wouldn’t hurt to keep the 240-minute swing buy in mind. However, the 60-minute has more proximity and ultimately will be more actionable but of course susceptible to more 'heat' if the EUR/AUD continues to sell off. The “point of validity” stop loss for the trade is 1.2475" Raghee adds.

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