When trading a cross pair such as EUR/AUD it is important to understand the fundamental and technical dynamic. EUR/AUD is a derivative of EUR/USD and AUD/USD, so we need to understand how these pairs are trading.

From a fundamental perspective, the difference between the major economic indicators and central banks' speech can help with our bias. In this article we will explore the differences that make EUR/AUD a potential forex pair of interest. 

Australia’s Inflation Spike and RBA’s Next Move

First off, Australia’s inflation numbers are soaring. The Consumer Price Index (CPI) just shot up to 4.0% year-over-year, up from 3.6%. This is a big deal because high inflation puts the Reserve Bank of Australia (RBA) in a tough spot. They might have to hike interest rates to keep things under control. Higher rates usually mean a stronger Aussie dollar because they attract more investors looking for better returns.

Europe’s Political Drama and ECB’s Rate Cuts

In Europe, the Euro isn’t having the best time. Political uncertainty is rising across Europe as far-right parties gain traction in elections, causing jitters in the market. This, combined with the European Central Bank (ECB) cutting interest rates, makes the Euro less attractive, weakening it further.

Performance Against the USD

When trading cross pairs it's important to note that we need to watch how the major currency pairs are trading. The major currency pairs for EUR/AUD are EUR/USD and AUD/USD. The EUR/USD  price is trending  to the downside due to the fundamental analysis noted above. The AUD/USD is holding within a range showing the two currencies are strong. If this remains the same then we should see the price of EUR/AUD trade lower.

Key Levels to Watch on EUR/AUD

Given these dynamics, the EUR/AUD pair is really interesting right now. It’s hanging around a critical support level at 1.6000. This is a crucial point because if the price breaks below it, we could see more downside action. The next big support zone is around 1.5600, which has seen a lot of trading activity in the past.

So, what does this mean for traders? Well, with all the pressure on the Euro and the potential for the Aussie dollar to strengthen, shorting EUR/AUD could be a smart play. If the price breaks below 1.6000, there’s a good chance it could slide down to the 1.5600 zone.

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