EURAUD continues to be in my crosshairs – the breakdown of the 200-day moving average last week has continued to roll through and with the economic data due this week likely to see a dampener on the EUR and a positive on the AUD I expect the downside movement in the pair to continue.
The Economic events –
European inflation: CPI
• CPI in the EU remains flat at around 1.2% to 1.4% year on year. The ECB makes CPI out to be positive ‘enough’ to justify ending its QE programs. However, it is still an on way from its target 2% level, particularly when you look at the overall tone of EU growth.
• The ‘renaissance’ that was expected of Europe this year just hasn’t materialized, as possible negative trade issues with the US flared and the EU periphery continued to flounder. This year has also been compounded by the Italian elections and populist movements in Germany, France, and Spain threatening EU stability across the board.
• Even Germany the largest economy in the EU is flattening, and that is despite the fact its ‘engine room’ Bavaria, has seen inflation hitting around 2.4%, as the ‘perfect storm’ hits its high-end manufacturing plays (automakers) and the services sectors flatline.
Inflation, therefore, is unlikely to gap up anytime soon leaving the ECB with no choice but to continue with its high accommodative monetary policy stance.
EUR likely to weaken.
AUD – Labour booming and unemployment falling
• Labour force market is booming: over the past year Australia has added 291,000 jobs or 2.4% in the past 52 weeks, it is over 500,000 if we look back at the past 2 years. 186,000 full term jobs have been created over the year to October with over 310,000 in the 24 months to October. Come Thursdays the expected change in the labor force figures is for 20,000 jobs created according to the latest Reuters poll – AUD positive initially.
• The unemployment rate has been falling steadily since peaking in October 2014. However, that fall has begun to steepen this year as the slack in the employment market tightened. The structural 0.3% move seen this year is strong, sustained and is steepening – Thursday’s unemployment rate is forecasted to be 5.1% on a trend basis down from 5.2% according to the Reuters poll this would confirm my AUD bias in EURAUD.
• The final part of the employment puzzle is hours worked, this has been rising solidly. Increased hours is a sign that employees are working and looking to work more – it has a strong correction to wages, the increase in hours should mean an increase in wages. This is a CPI inflator, and an AUD positive.
Therefore I suspect that this week EURAUD will be one of the more interesting pairs to watch, however when trading currencies off the back of economic releases it always prudent to have stopped in place and be wary of gapping.