EUR/USD drops to multi-year support as US Dollar Index and AUD/USD rally

​AUD/USD rout halted by surprise RBA rate hike to 0.35%

AUD/USD’s swift descent by over 8% from its $0.7661 early April high to Monday’s low at $0.7030 has been halted by the Reserve Bank of Australia (RBA) raising the cash rate by a larger than expected 25 basis points to 0.35% during its May meeting.

This was the first rate hike since November 2010 with the central bank hinting at further tightening to come as it seeks to tame surging inflation.

The currency pair thus regained more than 1% in value and so far intraday bounced back to $0.7147, close to the $0.7166 March low and the 29 April high at $0.7179, both of which should offer resistance today.

If overcome, the 10 February high and 8 March low at $0.7245 to $0.7248 would be in view. Only a currently unexpected slip through Monday’s low at $0.7030 would engage the January trough at $0.6968.

EUR/USD slips back towards key multi-year support

EUR/USD dropped by 15% from its 2021 pandemic peak to $1.0472, a level last seen in January 2017, with the decline accelerating amid Russia’s invasion of Ukraine and its halting of gas exports to Poland and Bulgaria last week.

This week the cross is expected to probe multi-year key support which can be spotted between the March 2015, December 2016, and January 2017 lows at $1.0463 to $1.0341. We expect this major support zone to hold, though. If not, the major psychological $1.0000 mark, or parity, would be in focus.

Minor resistance above the 29 April high at $1.0593 comes in at the March 2020 low at $1.0638 with further resistance being seen between the 14 and 19 April highs at $1.0758 to $1.0761. Further up sits the March low at $1.0806.

US Dollar Index set to revisit 2017 and 2020 highs

The US Dollar Index’s (DXY) parabolic rise, amid soaring inflation, heightened geopolitical tensions, growth concerns and worries about the impact further lockdowns in China and a weak yuan may have on the world economy, pushed it to the January 2017 and March 2020 pandemic peaks at 103.80 to 103.82 which capped in late April.

This week the 2017 and 2020 highs are expected to give way with the July 2002 low at 104.12 being eyed next. Further up sits the 104.60 July 1999 high.

After four consecutive strong weekly gains of around 5%, and 15% compared to a year ago, there is no support to speak of below the 29 April low at 102.70 until the higher weekly uptrend channel line at 101.25 and last week’s high at 101.45, the May 2020 high at 100.60 and the psychological 100.00 mark, all of which are unlikely to be revisited anytime soon.