EUR/AUD: Range Contracts As Breakout Looms

Technical Sentiment: Neutral

Key Takeaways

• Steady flows in AUD were noticed throughout the day as the greenback took another beating on weaker than expected data;
• EUR/AUD shows a descending triangle pattern which usually ends with price breaking below support;

Aussie advanced further against a basket of currencies on Tuesday, but EUR/AUD held above support at 1.4358 as daily ranges contract ahead of a possibly large breakout move.

 

Technical Analysis

In our last analysis on EUR/AUD, technical signals were heavily skewed in favor of sellers, pointing to a break below 1.4256. This event, however, never took place, leaving the pair in a state of temporary limbo while traders look for the proper economic hints to set the main direction.

A large descending triangle pattern was finally confirmed during 28^th/10 European session, when EUR/AUD re-tested and bounced off 1.4358 (38.2% Fibonacci retracement from Low point at 1.3798 to High at 1.4704). On the upside, rallies still comply with a bearish structure, forming consistent lower highs near a resistance trendline. With price quickly approaching the bottleneck, it’s obvious that a breakout is imminent on Wednesday.

Bearish confirmation will come after a break and close below 1.4358. This will pave the way towards 1.4300/13, possibly changing the Daily swing structure as a fresh Low should be priced in. Medium-term targets follow at 1.4251 and 1.4144.

A bullish scenario comes into effect only if EUR/AUD rallies above 1.4450, breaking above the trendline, previous lower high and 200 Simple Moving Average on 4H. Buyers would then target 1.4510/15, 1.4600 and ultimately October’s High at 1.4704.

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Prepared by Alex, Currency Strategist at Capital Trust Markets