Technical Sentiment: Bearish

Key Takeaways

• German Ifo Business Climate Index dropped again, below expectations, to 106.3;
• Aussie strengthened by steady cash flows;
• Support break, offering EUR/AUD an opening down to 1.4045 in the short term.

Traders were quick to price in a fresh 9-month Lower Low for EUR/AUD as soon as the markets opened on Monday, giving a green light for more losses in the short term.

Technical Analysis

EUR/AUD long term downtrend remains intact and losses are likely to expand in the coming days. Price opened with a small gap below 1.4211 in the early hours on Monday and the ensuing rally caved once the gap was filled and a re-test of the previous support (now turned into resistance) was complete.

Stochastic is located in extreme oversold territory on 4H and daily timeframes, based entirely on last week’s sell-off. Although oversold conditions indicate the necessity for a correction and increased changes for a bottom formation, selling pressure continues to mount and bullish price action signals are nowhere to be found. Consequently, we’re most likely to observe a sell-off acceleration this week, at least until price hits the next major support area.

While EUR/AUD remains below 1.4211, 7^th November 2013 Low of 1.4050 will be a likely attraction point for sellers, together with the large psychological handle 1.4000.

A daily close above 1.4211 would indicate the current dip as a fake support breakout. Traders are advised not to persist with short positions if this event comes to reality, because they could be caught in a 200pip bullish correction (4H 200SMA is the usual target for corrections, currently priced at 1.4375).

*********
Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets