EUR/AUD sitting at key support ahead of the RBA

• EUR/AUD has been in decline leading into the RBA meeting. 
• EUR/AUD consolidates at a 38.2% Fibo support level. 

EUR/AUD is currently trading at 1.6955 having travelled between 1.6952 and 1.6985. The weekend news sparked up a risk-off session in Asia which has carried on into European and US markets on Monday as the US administration investigates into the origin of the virus, weighing on commodity-FX, as well as the euro. 

Eurozone equities played catchup from their long weekend with sharp declines. US equity futures pointed to a down market open but ended the day higher with a surge into the close. China’s Shanghai Composite will remain closed through Tuesday, while Japan’s Nikkei will be closed through Wednesday. 

Chinee accusations unsubstantiated at this point in time

The US administration is embarking on an investigation into the origin of the virus. The US is seeking to prove that China withheld information which ultimately led to the global pandemic, in their view, albeit with it being unsubstantiated at this point in time.

However, there is no current evidence to suggest that coronavirus leaked from a Chinese research laboratory and the Guardian reported that their "sources insisted that a “15-page dossier” highlighted by the Australian Daily Telegraph which accused China of a deadly cover-up was not culled from intelligence from the Five Eyes network, an alliance between the UK, US, Australia, New Zealand and Canada."

The Guardian also wrote that the "British and other Five Eyes agencies do believe that Beijing has not necessarily been open about how coronavirus initially spread in Wuhan at the turn of the year. But they are nervous about getting involved in an escalating international situation."

Eurozone data was dismal

As for eurozone data which was in focus, Italy’s April manufacturing PMI fell to 31.1 from 40.3 in March. "Employment fell 6pts to 39.3, new orders collapsed 19.5pts to 11.6 and the output index dropped 16.4pts at 11.4. A 10pt rise in the future output index, a soft gauge of firms’ expectations 12 months ahead, was somewhat encouraging. It rose to 64.9 from 54.9. That is nearly back to the level it was at in January (66.7)," analysts at ANZ explained. 

Meanwhile, final April PMI reads for Germany and France were virtually unchanged, leaving the overall read for the euro area at 33.4 (flash: 33.6), down from 44.5 in March. However, with many European economies now starting to gradually re-open there is a growing sense that the worst of the data collapse is passing: the Sentix survey of investor sentiment steadied in May at -41.8 (April: -42.9).

As for the European Central Bank and prospects going forward pertaining to the COVID-19 economic crisis, the ECB published a range of alternative scenarios of the likely economic impact of the pandemic:

These would see a fall in real GDP for the Euro Area in 2020 of 5, 8, and 12 per cent under the mild, medium and severe scenarios respectively. The ECB’s chief economist Philip Lane said that under the “severe” scenario modelled by the ECB — entailing a 12 per cent decline in eurozone GDP this year — the economy would not still return to its level at the end of last year before 2023,

– analysts at Deutsche Bank explained.

RBA on the cards

Meanwhile, all eyes turn to the RBA: RBA Preview: Markets looking for forecasts, not action

The policy rate announcement is at 2:30pm Syd/12:30pm Sing/HK. "While the cash rate is expected to remain at the effective lower bound of 0.25%, the Board’s assessment of its yield curve control will be of interest to the market," analysts at Westpac explained, adding:

 Governor Lowe should also provide an indication of the forecasts the RBA will publish in Friday’s quarterly Statement on Monetary Policy. Massive changes will be needed as the February forecasts were for a year of solid economic growth. Any concern over the rebound in $A since March would be notable

EUR/AUD levels