At this point in time, I am a seller only, but I think that this market is probably going to continue to see overhead resistance, as we head toward the next RBA interest rate decision.
EUR/AUD
The Euro has rallied just a touch during the early hours on Friday as market participants continue to look at this through the prism of a risk appetite situation. Keep in mind that the Australian dollar is fairly strong due to the idea that the Reserve Bank of Australia is likely to raise rates next week, while the European Central Bank remains fairly soft and flat.
Quite frankly, I think that's a reasonable assumption, and we have to worry about the idea that the European Union might struggle with energy. All things being equal though, I think this is a bounce that probably gets sold into unless the RBA statement and even the press conference next week suggest that maybe the Australians are starting to rethink things. This happens on Tuesday and obviously will be very important as to where we go next.
Interest Rate Differentials and Future Outlook
On rallies, I believe that the 1.66 level continues to be very important, so I am looking to short this pair. The interest rate differential does favor the downside, and I like that as an opportunity to start selling on signs of exhaustion. We may have to creep higher for a couple of days, but we should get a nice selling opportunity before it's all said and done.
If the Reserve Bank of Australia surprises people by not tightening and suggests that they may have to loosen monetary policy again because of all of the unseen forces that have jumped into the market, that could be one thing to turn this market around, but right now I don't think that's very likely.