Barclays trade for the week ahead: Sell EUR/AUD

Although we hold a medium-term bearish view on the AUD (eg, see FX Focus: The Dutch Disease pandemic of 2000-12, 17 September 2015), we recommend a tactical short EURAUD trade going into the RBA meeting. Market pricing of the probability of a 25bp rate cut now stands near 45%. If the RBA holds rates, we think the AUD is likely to have a brief bounce. On the other hand, EURUSD is likely to remain under pressure with the ECB ready to ease policy in December. Downside momentum on the EURUSD could gather pace should US data surprise positively this week.Technicals are bearish for EURAUD in the near term. Support erosion signals further downside and we would prefer to use upticks as an opportunity to sell at better levels. A move nearby targets at the 1.5165 range lows would encourage our downside conviction. Our next targets are in the 1.4740 area.

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