HSBC Global Research has adjusted its position on the EUR-AUD currency pair, setting a lower target and stop-loss levels for its sell trade idea.
On the other hand, the firm revised its target down to 1.5690 from its initial position opened on September 20 at 1.6400. The stop-loss was also tightened to 1.6150.
The decision follows a series of negative data impulses from the Eurozone, which have persisted since the trade idea was initiated. Market expectations currently factor in a 25 basis point rate cut by the European Central Bank (ECB) in October.
However, further dovish signals in line with ECB President Lagarde's comments on September 30 might trigger additional market adjustments. Speculations are brewing that cuts could reach 50 basis points if the current trend continues.
The Eurozone's fiscal concerns are adding pressure to the euro, as evidenced by the sustained wide spread between the 10-year OAT (French government bonds) and German Bund yields. These factors contribute to the bearish outlook for the euro against the Australian dollar.
In contrast, the Reserve Bank of Australia (RBA) is expected to maintain its current policy stance while other central banks are easing theirs.
HSBC economists also anticipate additional policy stimulus from China, which is likely to benefit the Australian dollar. With the terms of trade shifting in favor of the AUD, HSBC's analysis suggests that the currency will perform better than the euro.
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