Aussie Strength Drives Bearish Outlook for EUR/AUD and GBP/AUD

The EUR/AUD and GBP/AUD currency pairs are currently compressing within bearish descending triangles, suggesting a potential resumption of their broader downtrend. The Aussie dollar's relative strength against Europe is also being driven by factors other than energy market movements, with recent analysis indicating that it's more about relative rates, risk appetite, and industrial metals.

According to the data, there has been an inverse relationship between the Eurozone (represented by Germany) and both pairs over 10- and 20-day windows. This means that as Europe's economy improves or weakens, the Aussie dollar strengthens or weakens relative to it. Additionally, strength in industrial metals has shown a strong inverse relationship with both pairs, particularly over the 10-day window.

Looking at the technical charts, both EUR/AUD and GBP/AUD are testing support levels within their respective descending triangles. If either pair breaks through its lower end of the triangle, it could lead to significant downside targets. For example, a clean break below 1.6090 in EUR/AUD would open up potential targets at the November 2024 swing low (1.5968) and beyond.

While economic data hasn't been driving these pairs recently, global flash PMI releases are scheduled for this week, which could generate short-term volatility but is unlikely to shift their bias significantly.