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EUR/AUD, GBP/AUD Threaten to Break 2014 Downtrends

EUR/AUD, GBP/AUD Threaten to Break 2014 Downtrends

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- AUDUSD continued losses raise question of systemic AUD issue.

- EURAUD and GBPAUD breakout of downtrend from 2014 high.

- Have a bullish (or bearish) bias on the US Dollar, but don’t know which pair to use? Use a USD currency basket.

The European currencies have been getting punished by the US Dollar the past few weeks. Is it time for the commodity currencies to take the lead? A look at some of the non-USD-based pairs suggests that weakness in AUD-crosses and NZD-crosses may just be beginning.

Although both AUDUSD and NZDUSD have been hit hard since early-September, it's truly been EURUSD and GBPUSD that have absorbed much of the greenback's belligerence. The fall of US yields throughout 2014 has help shift investor preferences back into chasing yield, and the higher yield of the commodity currencies relative to their European counterparts helped keep high beta prices supported.

If the Federal Reserve is serious about raising rates sooner than the market is pricing in - the dot plot was notably more hawkish relative to prior projections and market measures of inflation and rate expectations - another period of 'taper tantrum' a la May to August 2013 could emerge.

See the video above for technical considerations in AUDUSD, EURAUD, and GBPAUD, and what levels we're looking at to establish short AUD positions.

Read more:Managing Risk in EUR/USD, AUD/USD - Next Trade is in EUR/AUD

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.