The Reserve Bank of Australia (RBA) held its cash rate at 4.35% overnight, a decision widely anticipated after June inflation data came in softer than expected at a 3.8% headline rate. However, the accompanying policy statement struck a cautious tone, noting that trimmed mean inflation remains elevated and largely unchanged compared to the March quarter. The RBA also cited oil and related commodities trading above pre-conflict levels due to the ongoing Middle East crisis as an upside risk—a notable concern for a major commodity-exporting economy where raw material prices feed directly into trade terms and domestic cost pressures. With approximately 55% of surveyed economists still expecting at least one additional rate hike in 2026, the possibility of further monetary tightening remains firmly on the table.

The euro, meanwhile, retains a cautiously bullish sentiment after reaching a seven-week high near $1.155 against the US dollar. Eurozone Q2 GDP growth of 0.4% provided support, though weaker retail activity and mixed inflation indicators have kept the European Central Bank's (ECB) trajectory uncertain. The ECB had already delivered its first rate cut of the cycle in June 2024, moving ahead of most major peers, but subsequent data has complicated the pace of any further easing. ECB policymakers are maintaining a deliberately cautious approach ahead of their September 15–16 meeting and have not committed to any additional rate changes.

The result is two major central banks in genuine holding patterns—each keeping the door open to further policy adjustment while awaiting clearer economic data before committing to their next moves. For EUR/AUD specifically, this means the pair's direction hinges less on either bank acting imminently and more on which central bank's incoming data tilts the policy expectations dial first.

Technical Analysis of EUR/AUD

The EUR/AUD pair staged a strong rally from July lows near 1.6243, a move that followed a bullish RSI divergence, in which price printed a lower low while the RSI formed a higher low. After peaking near 1.6500 in late July, price action has compressed into a symmetrical triangle pattern, with a descending trendline and an ascending trendline converging around the 0.5–0.618 Fibonacci zone near 1.6342–1.6372.

Bullish Scenario: Should buyers hold the ascending trendline and break above the descending trendline, the path would open toward the 0.382 Fibonacci retracement near 1.6402. A stronger move could potentially target a retest of the 1.6500 highs if momentum continues to build.

Bearish Scenario: Conversely, a break below the ascending trendline and the 0.618 retracement near 1.6341 would expose the 0.786 Fibonacci level near 1.6298. A deeper decline could risk a retest of the 1.6243 low that anchored the entire July rally.

With price compressed at the apex of this triangle and the RSI in neutral territory after cooling from its earlier divergence, EUR/AUD appears positioned for a decisive breakout. The catalyst for that move is likely to come from the next round of inflation and growth prints from Australia and the Eurozone, either of which could shift relative rate expectations and resolve the triangle in either direction.