The uptrend continues, although its intensity has been lost since August. That time, the flat trend began forming, with a range of 1.6010-1.6375 AUD, but in the future, the trend might transform into a downward one. The optimism that prevails on the market contributes to the strengthening of the Australian dollar, which depends on the situation with the solution of the trade conflict between China and the United States. The euro, in turn, remains under pressure due to the economic downturn in the EU and perspective of easing the ECB's monetary policy.
This week, both currencies received a powerful stimulus for growth. Nevertheless, the euro was stronger by the end of the week, under the influence of the elections taking place in the UK. Boris Johnson won a landslide victory and will now be able to ratify the EU withdrawal deal in Parliament without any hindrance. Thus ends a long period of uncertainty for Britain and for the EU. As for this week's meeting of the ECB, it ended as expected, keeping rates unchanged, but hinting at a willingness to reduce them in the future. Macroeconomic reports are neutral.
The Australian dollar received support at the beginning of the week, with the publication of the house price index, which in the third quarter amounted to 2.4%, 5 times higher than forecasts. However, the RBA is ready to resume cutting the rate next year, which does not contribute to the strengthening of the AUD. It is expected that the rate will be cut to 0.5% in February. At the moment, the probability for this is high, despite the perspective of resolving the trade conflict between China and the United States. The latter is crucial for the AUD, allowing it to successfully counter the euro, especially today, after convincing messages about progress in the agreement between China and the US on the first stage of the deal. Last week the US decided not to impose new duties on goods from China, although they were planned earlier, from December 15.
We believe that the trade conflict between China and the US, at the stage it is in, will support the AUD. The euro will be under pressure, given the gold prices decrease in the event of a deal. In this situation, the deals to SELL seem the most effective. The entry points can also be specified at the 1.6010 and 1.6375 levels. Achieving the first one seems most likely.
