Technical Sentiment: Bearish
Key Takeaways
- EUR/AUD forms Double Top reversal pattern at 1.4555;
- Euro’s weakness is beginning to outweigh Aussie’s downfall.
- Next week markets will decide if this bullish run from 1.380 to 1.455 is ready to turn around.
Traders were unable to price in a Higher High on Friday morning, giving away a glimpse of weakness within EUR/AUD’s recent uptrend. Additional confirmations are required; however buyers should be extremely wary moving forward.
Technical analysis
In recent weeks, markets saw the Euro price in consistent gains against its Australian counterpart, erasing 38.2% of the losses incurred throughout 2014. EUR/AUD broke above the 50-Day and 100-Day Simple Moving Averages, exceeding even the most recent Lower High in the main uptrend, successfully invalidating the main long-term downtrend. As a result, bears will have a hard time gauging downside potential for this pair in what appears to be a game of who is weaker out of the two currencies involved.
EUR/AUD is currently trading around 1.4488 as the final trading session of the week is underway. Price action shows a reversal pattern at 1.4555, where a Double Top is now in place. Moreover, Daily Stochastic confirms overbought conditions and the need for a correction lower.
Free Reports:
Get Our Free Metatrader 4 Indicators - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter
Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Since EUR/AUD formed a Higher High on the Daily timeframe, we expect downside potential to be somewhat limited for now. If the Double Top will receive confirmation with a break below 1.4375, traders will seek to price in a Higher Low. Suitable targets are located around 1.4200/10, quickly followed by 1.4048. A breach below the latter will invalidate scenarios of a Higher Low forming followed by an uptrend continuation.
EUR/AUD could also disregard the Double Top at 1.4555 and rally higher, paving the way for more gains toward 1.4800 (200-Day Simple Moving Average). This scenario is less likely at this point, yet it’s worth underlining that bears should ditch their positions above 1.4555.
*********
Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
