Additional China stimulus helps stimulate the Aussie
Joe Perry August 25, 2022 8:04 PM
Earlier today, China announced 19 additional policies to help the economy, worth $146 billion. These policies will primarily support infrastructure projects.
After trouble in the housing market and a recent bout of poor data from China, including weak Retail Sales and Industrial Production, China has implemented several stimuli polices to help the beleaguered sectors. Earlier in the week, China announced plans for $29 billion in special loans to help troubled developers in the housing market. In addition, it cut loan prime rates, including a 15bps cut in the 5-year. This was viewed as helping the housing market, as this is the rate mortgage rates are based off. Earlier today, China announced 19 additional policies to help the economy, worth $146 billion. These policies will primarily support infrastructure projects. However, although these may be positive steps towards helping housing and infrastructure, will it be enough to help the broader economy?
One currency that has seemed to get a bid on the back of the China news is the Aussie. EUR/AUD had made a Year-to-Date high on February 4th near 1.6226 and quickly began a decent lower. Two months later, on April 5th, the pair made a low of 1.4320 as the Euro sold off due to a lack of commitment by the ECB to raise interest rates. EUR/AUD then bounced just above the 50% retracement level from the February 4th highs to the April 5th lows, near 1.5273, in an ascending wedge formation. The pair spiked through horizontal resistance at 1.5354 and resumed the prior trend lower, breaking below the ascending wedge on July 7th near 1.4975. The target for the breakdown of an ascending wedge is a 100% retracement. Today, after the China stimulus announcements, EUR/AUD reached the 1.4320 level and is currently trading below it!
Source: Tradingview, Stone X
On a 240-minute timeframe, EUR/AUD can trade much lower than current levels. The next level of support isn’t until the 161.8% Fibonacci extension level from the lows of August 14th to the highs of August 18th, at 1.4193. Below there, horizontal support dating to lows of March 2017 cross at 1.3873, then the 2017 lows down at 1.3627. However, if the break proves to be a false break below the prior support, resistance is just above at the at 1.4320. Above there, horizontal resistance crosses at 1.4359 and then the highs from August 24th at 1.4465.
Source: Tradingview, Stone X
China has begun new economic stimulus measures. But is it too little too late? The Aussie doesn’t seem to think so. EUR/AUD has been selling off for a while but has become more aggressive once the stimulus measures were announced. The pair sits just below a key support break. Will it continue lower or will this prove to be a false breakdown?
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.