Euro Maintains Post ECB Gains, Aussie Tumbles on RBA Deputy Debelle

Euro surged broadly overnight as markets took ECB President Mario Draghi’s comments positively. EUR/USD is now in an important medium term resistance zone of 1.1615/1713 and is maintaining solid upside momentum. The coming weeks will be important for the common currency. Sustained break of the current resistance zone would build up the base for a take on 1.2 handle by the end of the year. Against others, EUR/GBP also took out 0.8948 resistance and is now resuming the rise from 0.8312 towards 0.9304 key resistance. EUR/AUD also showed strong rebound which could have marked the completion of whole correction pattern from 1.5226 at 1.4421.

Elsewhere in the forex markets, Aussie is the next biggest mover after cautious comments from RBA Deputy Governor Guy Debelle regarding neutral rate. Sterling remains the weakest one for the week as rate bet cooled after weaker than expected inflation data released earlier in the week. Dollar closely followed as markets continue to doubt the whether Fed is ready to raise interest rate again if US President Donald Trump cannot push through his economic policies. Canadian Dollar will look into today’s CPI and retail sales data for fuel to extend recent rally.

Euro surges as Draghi promised QE discussions

ECB kept the main refi rate, the marginal lending rate and the deposit rate unchanged at 0%, 0.25% and -0.4% respectively. The central bank also affirmed that the QE program would be maintained at the monthly pace of 60B euro, which is "intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim". While leaving the policies and statement unchanged, Draghi promised QE discussions to begin in autumn. However, he refused to comment whether it means the September 7 meeting. That is seen as the main driver of Euro’s rally. More in EURUSD Rallied to Fresh 14-Momnth High as Draghi Promised QE Discussions in Autumn

RBA Delle: Don’t read too much into neutral rate discussions

RBA Debelle urged the markets not to read too much into the board’s discussion on neutral rate. He said that "no significance should be read into the fact the neutral rate was discussed at this particular meeting" And, "most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate." He also emphasized that "other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase."

Looking ahead, UK will release public sector net borrowing in European session. Canada will release CPI and retail sales in US session.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.4474; (P) 1.4561; (R1) 1.4701; More…

EUR/AUD’s strong rebound indicates short term bottoming at 1.4421, after hitting 100% projection of 1.5226 to 1.4625 from 1.4472. The development also suggests completion of the correction from 1.5226, with three waves down to 1.4421. Intraday bias is back on the downside. Sustained trading above 55 day EMA (now at 1.4744) will target 1.5073 resistance. Break there will indicate resumption of whole rise from 1.3624. On the downside, below 1.4585 minor support will turn focus back to 1.4421 instead.

In the bigger picture, we’re holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to resume to retest 1.6587. The corrective structure of the fall from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, further downside acceleration will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

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