Technical Sentiment: Bullish
Key Takeaways
EUR/AUD is increasingly developing a bullish technical sentiment, yet confirmation is still required. The current downtrend failed to provide a lower swing low, as price rose above the bearish trendline from March and is now within reach of the main resistance area. If European data does not disappoint too much, a rally above 1.4850 will confirm the reversal of the current trend.
Trend reversal scenario
Last week EUR/AUD offered a perfect rejection from 1.4850 – based off the 200-Day Moving Average and the trendline from March – making a higher low in the process. The rejection itself was signaled by a Bearish Engulfing Bar on the 4H chart (and a small bearish Pin bar on the Daily timeframe). Even with such a nice display from the sellers, the pair failed to beat the weekly low at 1.4653.
In a strong bearish trend, as it is the case right now, any failure to continue making lower swing lows is immediately perceived as a sign of weakness. Buyers are currently seeking to test the resistance between 1.4822 (triangle trendline, 200-Day Moving Average) and 1.4850 (previous high, 100 Simple Moving Average on 4H chart).
A break-out and close above 1.4850 will signal the trend is now bullish, opening the way higher. Main resistance levels:
Without corrections, trend continuation is limited
If EUR/AUD fails to breach the resistance, the triangle chart pattern remains valid and prices will continue to adopt a range personality. A bearish break of the triangle is a viable trading opportunity as well, yet the lack of correction in the trend thus far and oversold conditions could limit further drops to 1.4530 area.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets