Overview
EUR/AUD is a cross currency pair that combines the Euro with Australia’s commodity-linked Dollar. This pair offers traders exposure to European economic conditions versus Australian commodity markets and Asian economic dynamics, particularly China’s influence on AUD. EUR/AUD typically exhibits moderate to high volatility with spreads ranging from 1.5 to 3.0 pips, and is active during both Asian and European trading hours. The pair is particularly interesting because it reflects the relationship between European monetary policy and Asian commodity demand, creating trading opportunities when these factors diverge.
Why Trade EUR/AUD?
EUR/AUD provides unique trading opportunities by combining European economic dynamics with Australian commodity markets and Asian economic conditions. The pair is particularly useful for traders who want exposure to European economic strength without direct USD involvement, while also benefiting from commodity market dynamics through AUD’s correlation with iron ore, gold, and other raw materials. EUR/AUD often moves in correlation with EUR/USD but can diverge when commodity prices or Asian-specific factors (especially Chinese economic data) affect AUD. The pair’s moderate to high volatility offers significant profit potential for traders who can manage the risk.
Best Times to Trade
EUR/AUD is most active during:
- Asian Session (00:00-08:00 GMT): When Australian markets are open and AUD-related news is released, including Chinese economic data that affects AUD
- European Session (08:00-16:00 GMT): When European markets are open and EUR-related news is released
- European Economic Releases: European Central Bank (ECB) announcements and European economic data
- Australian Economic Releases: Reserve Bank of Australia (RBA) announcements and Australian economic data
- Chinese Economic Data: Releases that affect AUD due to Australia’s strong trade relationship with China
- Commodity Market Events: Significant movements in iron ore, gold, or other commodity prices
The pair sees best activity during Asian and European session overlaps, when both markets are active and liquidity peaks.
Trading Strategies
EUR/AUD responds well to both fundamental and technical analysis:
Commodity Correlation Trading: AUD strength correlates with commodity prices, particularly iron ore and gold. Rising commodity prices typically weaken EUR/AUD (AUD strengthens), while falling prices strengthen the pair. Monitor commodity price charts and enter positions when prices break key levels.
China Data Trading: Strong Chinese economic data typically supports AUD due to Australia’s trade relationship with China, potentially weakening EUR/AUD. Monitor Chinese GDP, PMI, and trade data, and trade in the direction of AUD strength.
European Economic Data Trading: EUR/AUD often moves significantly on European economic releases. Strong European data typically strengthens EUR, while weak data weakens it. Trade in the direction of the data surprise, but always verify by monitoring relative strength indicators to ensure the move aligns with broader market sentiment and isn’t just a temporary reaction.
Divergence Trading: The most reliable setups occur when EUR and AUD show strong divergence in relative strength. When EUR ranks #1-2 and AUD ranks #7-8, consider long positions, as this indicates EUR is significantly stronger and the pair is likely to rise. When the opposite occurs, consider short positions. This approach works because it aligns with fundamental market forces - when one currency is significantly stronger than the other, capital flows and market sentiment drive the pair in that direction until the strength differential narrows.
Central Bank Policy Trading: Divergence between European Central Bank (ECB) and Reserve Bank of Australia (RBA) policies can drive the pair. Higher European interest rates relative to Australia typically support EUR/AUD.
Breakout Trading: EUR/AUD can trend strongly during periods of economic divergence or sustained commodity price movements. Look for breakouts above resistance or below support when fundamental factors align.
Risk Sentiment Trading: During risk-on periods, AUD may strengthen relative to EUR, while during risk-off periods, the relative strength depends on which currency is more affected by risk sentiment.
Risk Considerations
EUR/AUD exhibits moderate to high volatility, requiring careful risk management:
Commodity Price Volatility: Sudden movements in iron ore, gold, or other commodity prices can cause rapid AUD moves, affecting EUR/AUD. Be prepared for increased volatility during commodity market disruptions.
China Economic Impact: Weak Chinese economic data can significantly weaken AUD, affecting EUR/AUD. Monitor Chinese economic indicators closely, as Australia’s economy is heavily dependent on Chinese demand.
Lower Liquidity: As a cross pair, EUR/AUD has lower liquidity than major pairs, which can result in wider spreads (1.5-3.0 pips) and potential slippage during volatile periods.
European Economic Uncertainty: European economic crises or political developments can cause significant EUR volatility. Stay informed about European political and economic events.
Risk Management: Use stop losses appropriate for the pair’s moderate to high volatility. Consider wider stops than major pairs to account for potential slippage and volatility spikes, especially during commodity market events or Chinese data releases.
Market Dynamics
EUR/AUD is influenced by several key factors:
Commodity Prices: AUD strength correlates with commodity prices, particularly iron ore and gold, due to Australia’s status as a major commodity exporter. Rising commodity prices typically weaken EUR/AUD (AUD strengthens), while falling prices strengthen the pair.
China Economic Data: Australia’s strong trade relationship with China means AUD is sensitive to Chinese economic data. Strong Chinese data typically supports AUD and weakens EUR/AUD, while weak data has the opposite effect.
European Economic Performance: Strong European economic data, including GDP growth, employment, and inflation, typically strengthens EUR and supports EUR/AUD. Weak European data has the opposite effect.
Central Bank Policy: Divergence between European Central Bank (ECB) and Reserve Bank of Australia (RBA) policies drives the pair. Higher European interest rates relative to Australia typically support EUR/AUD.
Correlation with EUR/USD and AUD/USD: EUR/AUD often correlates with EUR/USD (both involve EUR) and inversely with AUD/USD (both involve AUD). However, pair-specific factors can cause divergence.
Risk Sentiment: Both EUR and AUD are affected by risk sentiment, but the relative impact determines EUR/AUD direction. During risk-on periods, AUD may outperform EUR, while during risk-off periods, the relative strength depends on other factors such as commodity prices and economic data.
Understanding how EUR and AUD strength evolves in real-time helps identify when these currencies diverge and present trading opportunities based on commodity prices, Chinese economic data, and European economic performance. This approach combines fundamental analysis with relative strength dynamics to improve trade timing and probability.
Upcoming Economic Events
Events affecting EUR and AUD