Benzinga | Oct 04, 2012 03:49AM ET
The Aussie dollar has been beaten down strongly this week following the rate cut by the Royal Bank of Australia late Monday night. However, markets may have over-reacted to this news and there could be some imminent catalysts in the currency's favor that could see it climb.
One pair in particular to watch is the EUR/AUD cross, which has been extremely volatile over the past few months. The pair was no exception in the summer swoon of the euro, seeing the pair drop to record lows over the summer as investors fretted that the euro would cease to exist. Since the announcement and subsequent implementation of Draghi's pledge to do anything to protect the euro, the pair has rallied to the highest level since June.
The above chart shows the recent moves the pair, dropping as low as 1.16193 in August before rallying both on broad euro strength and broad Aussie weakness. However, there are a few events in the near future that could benefit the aussie and push the pair lower. Some of these events include:
With all of these events in mind, should the pair fail at the important technical resistance, it could be that downside risks prevail. Investors could look to short the pair at 1.2660, at first in small amounts, and then more if the pair repeatedly fails at that level. Do note that currency trading involves risks outside of those of other investments and investors should always do their own analyses before trading.
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