Short EUR/AUD presents a compelling macro-driven opportunity. Australia’s growth momentum outpaces the eurozone, and the Reserve Bank of Australia’s cautious easing is offset by stronger fiscal and domestic fundamentals. Meanwhile, the euro faces a backdrop of sluggish growth, weak business activity, and increasingly dovish European Central Bank rhetoric. The technical setup confirms the downside bias, supporting a bearish trade view.

Fundamental Analysis

Australia’s economic data has shown signs of resilience even as the Reserve Bank of Australia (RBA) prepares to lower interest rates. March-quarter trimmed mean inflation has fallen to 2.9%, now firmly within the RBA’s 2–3% target range. While this supports a likely 50 basis point rate cut on May 20, the RBA is easing from a higher starting point — 4.1%. This offers AUD continued carry appeal relative to the eurozone.

Growth expectations for Australia are also improving. After a subdued 2024, the economy is forecast to expand by 2.1% in 2025. The recovery in private consumption and infrastructure investment supports this expansion. Australia’s fiscal profile remains a standout among G10 peers, with a budget surplus of 0.9% of GDP and government debt at just 43.8% of GDP.

By contrast, the eurozone continues to struggle with anaemic growth and limited policy headroom. The latest figures show 0.4% quarterly GDP growth and 1.2% annual growth, with inflation softening to 2.2% YoY. This removes pressure on the European Central Bank (ECB) to maintain higher rates. The ECB’s benchmark interest rate remains at 2.4%, and markets are pricing in rate cuts by Q3 2025.

Labour market conditions also reflect this divergence. While Australia’s unemployment rate is a manageable 4.1%, the eurozone’s remains elevated at 6.2%. There is minimal improvement in real wages or business sentiment. Combined with weak consumer confidence and negative trade shocks in Germany and France, EUR appears fundamentally vulnerable.

The fiscal picture adds to the downside pressure. Eurozone governments continue to run deficits, with the region-wide budget deficit at -3.1% of GDP. This is far weaker than Australia’s surplus-driven model.

Sentiment Analysis

Retail traders are heavily short EUR/AUD — according to Myfxbook, over 80% of positions are short. This is a contrarian bullish indicator for EUR/AUD. However, this positioning must be viewed in context.

Institutionally, the sentiment continues to favour AUD outperformance, especially as hedge funds begin rotating out of EUR amid persistent growth concerns. The Commitments of Traders (COT) report also reflects a reduction in net long euro positions, while speculative net short AUD positions are declining.

Overall, while retail sentiment may caution against excessive positioning, the macro narrative and institutional flow continue to favour AUD strength. Thus, justifying a short EUR/AUD position.

Technical Analysis

The daily chart of EUR/AUD shows a weak technical structure, consistent with a developing downtrend:

• Price is trading below the Conversion Line (1.7675) and Base Line (1.7835) on the Ichimoku Cloud, indicating immediate bearish momentum.
• The pair is trapped within the cloud, suggesting a consolidation phase with a downward tilt.
• The Chikou Span is below price, supporting the short bias.
• The Future Kumo is narrowing, with Leading Span A flattening near 1.7755 and Span B at 1.7490, showing weakening trend strength but still biased lower.

Momentum indicators further support the bearish case:

• RSI is at 46.22, below its signal line, with no sign of bullish divergence.
• MACD has crossed below the signal line, and the histogram remains negative — confirming bearish momentum.
• Volume is declining, suggesting weak demand on rallies and favouring sellers.

Candlestick analysis shows a series of lower highs and lower lows. Recent price action has stalled below 1.7670, reinforcing resistance at that level. Key support now sits at 1.7500. There is further downside potential toward 1.7250 if that breaks.

Conclusion

The bearish case for EUR/AUD is supported by a comprehensive alignment of macroeconomic weakness in the eurozone, diverging monetary policy expectations, and a vulnerable technical structure. Although the RBA is expected to cut rates, the broader growth and fiscal story strongly favour AUD. Combined with technical momentum and institutional positioning, the setup supports a short EUR/AUD view.

Outlook: Bearish EUR/AUD
Key Resistance: 1.7675
Key Support Levels: 1.7500, then 1.7250
Invalidation Level: Sustained close above 1.7750 with bullish volume

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