AUD/EUR: Risks seem tilted to further downside - ANZ

Research Team at ANZ, suggests that AUD/EUR has trended modestly lower in recent weeks after failing to break a triple top in mid-June.

Key Quotes

“This reverses part of the outperformance post-Brexit as fears of contagion into the euro area have largely been alleviated by steady euro area activity data and further signs that inflation is improving.

The unwind of the fear premia in the euro likely has further to run in the near term. We have reservations about chasing this cross given continuing concerns surrounding the euro area banking sector. While the EBA’s stress test results have now been absorbed by the market, banks will face continued profitability pressures from raising more capital, flatter yield curves, negative deposit rates, and potentially, losses on bad loan portfolios.

Saying that, the EUR has been remarkably resilient to weakness in banks stocks over the last year, and market volatility more generally. This likely reflects fundamentals, with its large current account surplus providing support. Hence, risks seem tilted to further downside in this cross, although we expect it will be difficult to breach recent ranges.”