EUR/AUD Likely To Challenge 1.50

 | Feb 06, 2014 03:28AM ET

The EUR/AUD was one of the easier trends to trade leading up to the end of 2013. While our 1.55 target was achieved easily it could not quite stretch to 1.60. Since selling off for the past 2 weeks we try to identify likely stalling points, and the probability of a trend continuation.

EUR/AUD Monthly

Since the lows in July '12 the primary trend has accelerated its bullish momentum while also producing rhythmical cycles which are pleasing to the eye of a trend trader. Last month, however, we produced a Rikshaw Man Doji to warn of pending weakness to the trend and possibility of a pullback. We saw a similar pattern 6 months ago which resulted in 3 months of corrective trading before a resumption of the uptrend. So far this month we have accelerated down towards last month’s lows and not far from challenging the pivotal level of 1.50. 

A break below this level leaves a potential 1000 pip retracement towards the next swing low of 1.04.

EUR/AUD Weekly

Likely to challenge 1.50. How it reacts here is very important.

Two weeks ago we witnessed a Dark Cloud Cover reversal signal, only to see price break the lows of the pattern to confirm it this week. This paints a bearish picture on the near-term weekly charts. 

We still have two trading days left this week, but we can see how (at time of writing) price is not too far above the 1.50 level. There is however a confluence of support comprising of psychological round number. Monthly S1, 50% fibs and 20 sMA.  

Due to the confluence of support I favour at the very least a bullish bounce around this level, and the amount it bounces would provide further clues. For example if the daily timeframe shows small candles with little effort to push higher, then we could seek a 'dead cat bounce' pattern to initiate short position down to 1.49 and 1.16. 

If the bounce is aggressive then we can gain a lot more confidence in 1.5 holding and observe price action around 1.54-55. If we see a loss in bullish momentum then we can look for evidence of a Head and Shoulders reversal forming. 

Due to the fact the Australian dollar has been one of the weakest currencies this year (only 2nd to the Loonie), the fact that the EUR/AUD is showing signs of weakness could indeed provide the heads up that this is the mere beginning of something more drastic against the euro. This is merely a passing thought at this point but something to consider as price develops.