This week our currency strategists focused on Australia’s CPI Report (May 2025) for potential high-quality setups.
Out of the four scenario/price outlook discussions this week, one discussion arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay.
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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Check out our review on those discussions to see what happened!
EUR/AUD: Wednesday – June 25, 2025
EUR/AUD 1-hour Forex Chart by TradingView
On Wednesday, our strategists had their sights set on Australia’s CPI report for May 2025 and its potential impact on the Australian dollar.
Based on our Event Guide, expectations were for headline inflation to hold steady at 2.4% year-on-year, with traders likely paying close attention to underlying metrics to gauge sticky inflationary pressures.
With those expectations in mind, here’s what we were thinking:
The “Aussie Advance” Scenario:
If the CPI came in stronger than expected, we anticipated this could reinforce the RBA’s hawkish stance on keeping rates “sufficiently restrictive,” potentially reducing market expectations for aggressive rate cuts in the second half of 2025.
We focused on AUD/CHF for potential long strategies if broad risk sentiment leaned net positive, especially given the Swiss National Bank’s recent dovish pivot and rate cuts to zero.
In a risk-off environment where traditional safe-havens typically outperform, AUD/NZD long made sense given the central bank policy divergence, with the RBNZ delivering six consecutive rate cuts while the RBA maintained a more measured approach.
The “Aussie Avalanche” Scenario:
If Australia’s inflation data disappointed, showing a significant slowdown in price growth, we thought this could weaken the Aussie and fuel dovish RBA repricing.
In this case, we considered EUR/AUD for potential long strategies in a risk-on environment, particularly given the ECB’s hints at pausing its rate cutting cycle with officials suggesting they’ve reached “neutral territory.”
If risk sentiment leaned negative, AUD/JPY shorts looked promising given the Bank of Japan’s preparation for potential rate hikes, creating underlying policy divergence that would favor safe-haven flows into JPY.
What Actually Happened
Australia’s May CPI report delivered a notable disappointment across the board. The headline inflation rate dropped to 2.1% year-on-year, significantly below the 2.4% expectation and marking a sharper decline than anticipated. This represented the most dovish surprise in several months for Australian inflation data.
Key points from the CPI report:
- Headline CPI fell to 2.1% y/y versus 2.4% expected, the biggest miss since early 2025
- Underlying price pressures showed broad-based cooling, with core measures also coming in softer than anticipated
- The TD-MI Inflation Gauge had already hinted at weakness, recording the biggest monthly drop in 33 months leading up to the official release
- Services sector price pressures “notably eased” according to recent PMI reports, foreshadowing the softer print
Market Reaction
This outcome fundamentally triggered our AUD bearish scenarios, and with risk sentiment improving following the Israel-Iran ceasefire developments earlier in the week, EUR/AUD became our focus.
EUR/AUD 1-Hour Forex Chart by TradingView
Looking at the EUR/AUD chart, we can see the pair found support near the 1.7850 minor psychological level and rising moving averages confluence during pre-release consolidation.
After the disappointing CPI data hit the wires, the fundamental catalyst sparked an immediate move higher, with EUR/AUD breaking back above the 38.2% Fib and pushing toward the R1 level near 1.7950.
The euro’s gains were supported by the stark contrast between the ECB’s hints at pausing rate cuts versus the now-likely dovish RBA repricing following the inflation miss. The pair’s upward momentum was amplified by the broader risk-on environment, as improving geopolitical sentiment following the Middle East ceasefire reduced demand for safe-haven assets while highlighting the monetary policy divergence theme.
EUR/AUD maintained most of its post-CPI gains throughout the week, consistently trading above the event price and reaching intraweek highs as traders positioned for potential RBA easing.
The Verdict
So, how’d we do?
Our fundamental analysis correctly anticipated AUD weakness on disappointing inflation data, which materialized exactly as expected with the 2.1% versus 2.4% miss. Our technical analysis also accurately identified the potential support area and possible breakout levels on the EUR/AUD chart.
If traders entered long positions near the area of interest after the weak CPI release, they could have captured a solid move higher that sustained through the week. The strategy execution was relatively straightforward given the clear fundamental catalyst and technical setup alignment.
Overall, we think this discussion was “highly likely” supportive of a net positive outcome as both fundamental and technical triggers aligned well. The disappointing Australian CPI provided the perfect catalyst for dovish RBA repricing, while the improving risk sentiment environment favored the EUR/AUD long thesis over other bearish AUD scenarios.
The pair rarely spent time below the event price level and ended the week near intraweek highs, suggesting traders likely didn’t need complex risk management strategies to generate positive returns.
