FUNDAMENTAL ANALYSIS
Jason Chen
AUD/USD
The Australian Dollar closed lower at 0.65260 against the greenback, a fall of 2.89% over the close of the previous week. On Wednesday, the Federal Reserve announced a 75 basis point increase to the Federal Funds Rate, bringing the target range to 3-3.25%. The fifth rate hike this year also marks one of the biggest, with the Federal Reserve implementing more aggressive rate hikes to curb the surging inflation which last came in at 8.3%, above market expectations. The market reaction was obvious, with the AUD falling 0.86% on the day of the announcements as well as Wall Street increasing its expectations for future rate hikes, expecting it to rise to 4.31% before stopping compared to 4.22% before the announcement. With the growing interest rate differential between the US and Australia, it will be interesting to see the RBA’s response in a little over 2 weeks to see whether the Aussie Dollar will continue to face downward pressure against the greenback.
EUR/USD
The Euro fell below parity once again this week, closing at 0.969 against the greenback off the back of a significant fall due to the Federal Reserve’s announcement as aforementioned. With Vladimir Putin’s announcement of partial mobilisation of its reserve troops, the ongoing war in Ukraine is likely to last longer than expected. This uncertainty, alongside the surging raw material prices and energy costs, continues to impact the greater eurozone but in particular, Germany, whose major trading partner China is also facing a major economic slowdown. Against this backdrop, Germany appears the most likely to face significant downside in this region, and its importance to the currency has put further downward pressure and pessimism around the currency. Therefore, given the US’s hawkish stance and the state of the eurozone economy, it is likely that the Euro will remain below parity and could further lower before any significant rebound.
TECHNICAL ANALYSIS
Andrew Sun
AUD/USD
The Australian Dollar continued its tumble in the past week, falling almost 3% on the back of a more hawkish Federal Reserve. It has broken down through the long-term horizontal support level at 0.668 on significant volume, suggesting that the Dollar may fall to 60 US cents, its next major support level. The rapid divergence of the MACD from its signal line further supports this hypothesis, illustrating the severe weakness the AUD is experiencing. It will be interesting to see if the AUD will break below 0.60 USD and retest the lows hit during early 2020 given the significant amount of bearish news it has received recently.
EUR/USD
The Euro fell almost 3% to trade firmly below parity last week amidst a wrath of bullish news for the greenback. It continues to trade within a downward channel that it has respected for well over a year, but having broken below parity on significantly increased volume, we will likely see the Euro retest the bottom trendline at around the 0.94 level. The MACD also supports this, with its divergence from the signal line suggesting that the bears are in control. It will be interesting to see if the Euro will heed to this hypothesis or if it will reverse and retest parity with the US Dollar.