HSBC Global Research has adjusted its position on the EUR-AUD currency pair and set a lower target and stop-loss levels for its sell trade idea.
On the other hand, the company has revised its target down to 1.5690 from the 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 continued since the trade idea was launched. Market expectations currently take into account a 25 basis point interest rate cut by the European Central Bank (ECB) in October.
However, further easing signals, in line with ECB President Lagarde’s comments on September 30, could lead to further market adjustments. There is speculation that the cuts could reach 50 basis points if the current trend continues.
The eurozone’s budget concerns are putting additional pressure on the euro, as evidenced by the persistently large difference 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 will ease their policies.
Economists at HSBC also expect additional policy stimulus from China, which is likely to benefit the Australian dollar. With trading conditions shifting in favor of the AUD, HSBC analysis suggests the currency will outperform the euro.
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