Follow The Flow: EURAUD Breaking Out

Retail Heavily Short EURAUDLooking across the skew in retail trading sentiment today, EURAUD stands out as a good candidate for long opportunities. The retail market is holding a large, roughly 90% short in the pair. EUR has been on a tear higher this week in response to hawkish comments from a group of ECB members yesterday. Members from France, Germany and Ireland were seen voicing their support for further ECB hikes as the bank battles to bring inflation down to target. The key message was that it was too early for the central bank to consider a pause in tightening and further hikes this year were deemed necessary.ECB/RBA DivergenceWith hawkish ECB expectations receiving fresh confirmation, there is clear divergence between the outlook for the ECB and the RBA. The RBA recently paused its tightening campaign and is widely expected to hold off from any further rate hikes in the near-term while it assesses the impact of recent rate hikes. With this in mind, EURAUD looks vulnerable to further upside near-term. This is particularly true if the current pull back in risk assets deepens, which will weigh further on AUD than EUR.Technical ViewsEURAUDThe rally in EURAUD has seen the market breaking out above the 1.6428 level, supported by the rising trend line off YTD lows. With momentum studies bullish and retail firmly short, the focus is on a continuation higher and a break of the 1.6589 level targeting a move towards the longer run target of 1.6826 above.