By Greg Holden – The euro has been losing ground against the Australian dollar (AUD) for more than a year now, but we have been seeing signs of a pause at the current level, near a price of 1.4500. Traders who were expecting positive news about a euro rebound, however, may be sorely disappointed. The current pause has taken the shape of a consolidation trend, or pennant formation, on the weekly chart.
The pennant formation is typically known as a pause in the market which occurs right before a continuation of the previous trend. It forms after a sustained trend is broken, but then the price is unable to continuously break out of the previous pattern and gradually consolidates towards a point (see chart below). Once the point is reached, the previous trend – in the case of the EUR/AUD, a downtrend – will continue as before since trader sentiment wasn’t able to support the breaking of the trend.
Technical Analysis
– The chart used here is the EUR/AUD weekly chart, provided by ForexYard.
– The indicators being shown are the Relative Strength Index and Stochastic (slow).
– Point 1 on the chart represents the long and steady downtrend experienced by this currency pair over the past year-and-a-half.
– Point 2 marks the consolidation point of the pennant formation. As we can see, the current price sits near the lower border of the pennant formation and we may expect an upward move before it reaches the tip.
– Out indicators are both showing gradual upward pressure which supports the notion that we may see an upward price move prior to the conclusion of the pennant.
– As an additional side-note, this morning’s release of the Australian Producer Price Index (PPI) showed a far worse-than-expected release of only 0.3% growth, and may be putting pressure on the AUD in the short-term, also supporting the notion of an upward movement in this pair throughout the next day or two.
EUR/AUD – Weekly Chart
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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