EUR/AUD Breaks Above Key Supply Zone Despite RBA's Rate Hike

• EUR/AUD pair gains positive traction for the second successive day on Thursday to lift spot prices beyond the key supply zone
• Euro continues to draw support from aggressive rate hikes bets during ECB Monetary policy report on Thursday despite disappointing euro macro data and energy crisis in Europe
• Reserve bank of Australia hiked its interest rates by 50bps but traders, however, were not entirely convinced to buy the Aussie dollar

EUR/AUD cross prolonged its recent strong move over the past one-and-half weeks or so and gained traction for the second successive day on Wednesday. The momentum lifted spot prices to a new one-week high around the 1.47212 - 1.47307 levels during the first half of the Asian session.

On the European docket, European markets rose cautiously on Tuesday as investors continued to assess recession risks in the region. The pan-European Stoxx 600 ended the day up 0.2%, with most sectors and all major bourses in the black. Retail stocks were the best performing day, closing up 1.7%.

Fears of an energy crisis in the eurozone area came back on Monday after Russia said it would indefinitely shut off its main gas supply pipeline to Europe. On Friday last week, Russian energy supplier Gazprom said it would not resume its natural gas supply to Germany through the key Nord Stream 1 pipeline, blaming a malfunctioning turbine. The announcement was made hours after the Group of Seven economic powers agreed on a plan to implement a price cap on Russian oil. As a result, the front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, was nearly 30% higher Monday morning, hitting 282.5 euros per megawatt hour. This in turn, further dented the market sentiment across Europe at a time when the eurozone area is facing record-high inflation.

The recent move by Gazprom to shut off gas supplies to Europe comes ahead of a meeting of the European Central Bank on Thursday, when economists expect it to raise its benchmark deposit rate by 0.5 or 0.75 percentage points against a backdrop of concern over Europe's ability to meet its energy needs this winter and the potential for a hit to growth.

Further weighing on the EURO, German industrial orders declined by 1.1% in July, data from the federal statistics office showed on Tuesday, below expectations of a 0.5% contraction from a Reuters poll of analysts. The fall marks a sixth consecutive month of shrinkage as the war in Ukraine continues to squeeze activity in Europe's largest economy, with rising costs and material shortages hampering the industry.

On the Australian docket, the Reserve Bank of Australia (RBA)Monetary Policy Committee decided to increase the cash rate target by 50 basis points to 2.35 percent. It also increased the interest rate on Exchange Settlement balances by 50 basis points to 2.25 percent. The RBA statement also mentioned that the board is committed to doing what is necessary to ensure inflation returns to target. However, the market failed to buy the Australian dollar as the recently announced rate hike seems widely anticipated and already priced in. Also likely to convince the EUR/AUD sellers could be the sluggish moves in Aussie equity markets and fears of cooling household spending in Australia.

That said, it should be noted that the covid easing woes in China also should have favored the EUR/AUD sellers but did not. Talking about the covid conditions, per Reuters. "China's Shenzhen City eased a COVID-19 lockdown on Monday, while Chengdu-the capital of the southwestern province of Sichuan- extended its lockdown for most people to Wednesday.

As we advance, traders will look for cues from the release of Australia's Q2 GDP report later today during the mid-Asian session. The report is expected to show economic activities in Australia have improved since last year. During the early European session, Germany will also publish July Industrial Production. The EU will release the final estimate of its Q2 Gross Domestic Product, expected to be confirmed at 0.3% QoQ. 

The focus now shifts toward Thursday's ECB monetary policy statement report. The record-high inflation in the Eurozone has raised expectations for another bumper interest hike by the ECB. Nevertheless, the outcome and the near-term policy outlook will play a key role in influencing the euro and help determine the next leg of a directional move for the EUR/AUD cross.

Technical Outlook: EUR/AUD Four-Hour Price Chart

From a technical perspective, spot prices are now looking to extend the momentum beyond the key Supply Zone ranging from 1.46624 - 1.47204 level. Some follow-through buying would lift spot prices toward the upper trendline of the ascending channel pattern plotted from the August 2022 swing low. The resistance level would act as a barricade against the pair against any further uptick however, a clean break above the mentioned hurdle would be seen as a new trigger for bulls to continue pushing the price up and pave the way for additional gains. 

The RSI(14) level at 61.95 is on the verge of breaking into overbought territory and warrants some caution ahead of this week's key events/data risks. The moving average convergence divergence (MACD) crossover at 0.00199 paints a bullish filter. Additionally, The 20 and 50 Exponential Moving Average(EMA) crossover at the 1.44653 level further adds to the upside bias. 

On the flip side, a pullback beyond the supply zone followed by a convincing break below the lower trendline of the ascending channel pattern will negate the positive outlook and prompt aggressive technical selling. The downward trajectory could then accelerate toward the demand zone ranging from 1.45127 - 1.45643 levels.