Risk Event for the week starting 4 September: RBA rate decision

Given this, and the more hawkish European Central Bank, Zain Vawda, FX analyst at Daily FX, looks at a potential deeper retracement for EUR/AUD from which to go long going into the rate announcement.

(Video Transcript)

The Reserve Bank of Australia

Let's take a look at the risk event for the week, starting Monday the 4th of September. And for this, we're joined by Zain Vawda, who's joined us now from Johannesburg, New Zealand. Zain, what have you got for us? Let us know more about the trade you're looking at. Hi, Jeremy. Thank you for having me, sir. The risk event I will be focused on in the week ahead will be the Reserve Bank of Australia interest rate decision with a potential long position on the EUR/AUD.

Now, obviously, looking at the Reserve Bank of Australia interest (RBA)'s position heading into the meeting, and we have obviously seen significant progress on the inflation front with the recent inflation trend coming in below the 5% mark for the first time since the highs of December 2022. Now, obviously, that coupled with a slight increase in unemployment, as well as the current situation in China, I do expect the RBA to keep rates on hold at the upcoming meeting.

The European Central Bank

Now, in contrast, if we look at the European Central Bank (ECB)'s position, yesterday we did have ECB and Euro area inflation data. And obviously, we saw a slight uptick there in terms of the headlining figure, as well as the month-on-month figure, even though we saw a slight drop-off in the core inflation number. Now, that also, we did hear some comments from ECB members who do feel that they are approaching the peak rate. However, they're not here yet.

EUR/AUD

So, I do think that we still will get at least one more rate hike from the ECB before the year is out. And obviously, looking at that picture on the macro side, I do think that there is still potential upside for EUR/AUD looking ahead. So, I mean, if we can take a look quickly at the chart and see what the technicals are telling us. I mean, if we look at the technicals here, we can see that we have been, you know, staircasing our way higher since the lows of August 2022, and, you know, making higher highs and higher lows up until two weeks ago when we reached the year-to-date high around the 170-60 mark.

RBA rate decision

Now, obviously, since then, we are seeing a slight replacement here, which is something I actually prefer. I am looking for a bit of a deeper replacement next week ahead of that RBA decision, and potentially looking at that 50% Fib replacement level, or potentially a bounce off that ascending trend line again, which would obviously provide the best risk-to-reward opportunity for potential longs.

Now, obviously, having said that, like I say, I do think this is a really interesting opportunity. I would be looking for fresh highs in weeks, and obviously, this is what I will be focused on in the week ahead. Sam, thanks very much indeed. That's Risk Advice for the week, starting Monday, the 4th of September.