2022 T1 W3

Fundamental Analysis

AUD/USD
  • The AUD has rallied from 0.7261 on 28 February to 0.7374 against the USD over the past week due to higher commodity prices and the fact that Australia is a big exporter of metals. It is somewhat surprising that the AUD has performed well amidst the Ukraine-Russia conflict given that it is a risk-on currency that should theoretically not fair too well in times of uncertainty, compared to the safe haven USD. However, rising commodity prices, as well as Australia’s trade surplus for January being well above expectations, rising to $12.9 billion (almost a record high) from $8.4 billion, has provided great strength to the Aussie.  
  • Another factor working in favour of the Aussie is Western Australia having reopened its borders to vaccinated travellers on 3 March, meaning that the entire country is now open to vaccinated tourists and foreign workers. However, Non-farm payroll data was released on 4 March, indicating that the US added 678,000 jobs to the economy in February, versus an expectation of 400,000. This could see the USD appreciate against the AUD in the short-term if the effects of this data still need to be priced in. It will be interesting to see whether the Ukraine-Russia conflict intensifies, and whether commodities continue to rise, as an escalation in the conflict without a rise in commodity prices may lead to a fall in the AUD/USD as investors go back to USD safe haven asset. 
EUR/USD
  • The EUR has had a rough week against the USD, falling to 1.0930 – the lowest in almost 2 years. While the Euro was showing strength in early February, it has now plummeted with the escalating conflict between Russia and Ukraine. There are even fears that the Euro may sink to parity with the USD in 2022. The Euro has been one of the worst performing currencies amidst the Ukraine-Russia conflict, falling by 4.7% against the USD in the past month.  
  • However, there is another growing pain that the Euro has to contend with. Since the Ukraine-Russia conflict is slowing the pandemic recovery in Europe, the ECB has been more dovish in its monetary policy compared to the Federal Reserve, which is now seeking a 25-basis rate hike over the next month. This has further hurt the EUR against the USD as investors seek higher rates. The Euro has also suffered from recent interventions by the Czech and Polish central banks to prop up their currencies. 

TECHNICAL ANALYSIS

AUD/USD
  • The AUD has risen rapidly against the USD over the past week, breaking past the 0.7280 resistance level to close at 0.7374 on 4 March. It has also broken through the clear ascending channel prevalent throughout February, indicating that there are likely to have been fundamental forces at play to help prop up the AUD. As discussed earlier, the spike in price is likely due to the quick rise in commodity prices. On 25 February, the 14-day EMA crossed above the 52-day EMA, giving a small indication of an upward trend. The next event to look out for is the possible cross of the 14-day EMA above the 200-day EMA as this will provide further evidence of a bull market. 
  • The MACD line has continued to travel well above the signal line, with the distance between the two only having increased over the past week. This is another indication of positive momentum for the pair. On the other hand, the RSI currently posts a reading of 68.22, meaning that it is nearing the RSI 70 ‘overbought’ territory. It will be interesting to see if the RSI rises above 70 over the next week as it may just provide a sell signal to end the AUD’s rally. 
EUR/USD
  • The Euro has suffered a heavy decline over the past week to fall to 1.0930 to close out the week and nearing ever closer to the 1.0773 2-year support level. When observing the EMAs, it can be seen that the 14-day EMA has fallen rapidly, reflecting the heavy selling this week. The 52-day and 200-day EMAs have also shown marked declines recently. However, no crosses in the opposite direction appear imminent from the EMAs alone, so there may simply be a continued decline in the Euro. 
  • The MACD has continued to fall well below the signal line over the past week, giving further indications of bearish momentum for the pair. The RSI is currently at 25.54, meaning it is well into ‘oversold’ territory and currently providing a buy signal. However, this signal should be treated with caution given the fundamental forces at play. The Ukraine-Russia crisis is the source of much of the volatility in the Euro, so one should make sure they have considered the heavy geopolitical risks that come with taking a position in the Euro.

Sources:

https://www.cityindex.co.uk/market-analysis/two-trades-to-watch-eurjpy-audusd/

https://www.afr.com/markets/currencies/skyrocketing-commodity-prices-lift-australian-dollar-plumb-euro-20220302-p5a13u

https://www.bloomberg.com/news/articles/2022-03-02/singapore-infection-growth-slows-new-u-s-plan-virus-update

https://www.bloomberg.com/news/articles/2022-03-02/australia-s-economy-rebounds-strongly-on-consumer-spending-boom

https://www.cityindex.co.uk/market-analysis/strong-february-nfp-report-however-wages-slip/

https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2022/03/03/US-Dollar-Price-Action-Pre-NFP-EUR-USD-EURUSD-GBP-USD-GBPUSD-AUD-USD-AUDUSD.html

https://www.bloomberg.com/news/articles/2022-03-04/euro-risks-slide-to-parity-as-ukraine-war-s-most-liquid-short

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