EURAUD recently broke above the neckline of an inverse head and shoulders pattern, signaling a reversal from its previous downtrend. Before price resumes its climb, it could still make a pullback to the broken resistance area.
Applying the Fib tool on the latest swing low and high on the 4-hour chart shows that the broken neckline coincides with the 50% Fibonacci retracement level, which might keep losses in check. The 100 SMA is also close to this area, adding to its strength as support, and is above the longer-term 200 SMA to indicate that the path of least resistance is to the upside.
Stochastic is still on the move down to show that there’s still some bearish pressure present. Once the oscillator reaches the oversold area and turns higher, buyers could regain control of price action and push for a climb to the recent highs at 1.5090.
Economic data from Australia came in weaker than expected yesterday, as the economy lost 3.9K jobs in August instead of reporting the estimated 15.2K gain. The jobless rate fell but mostly due to weaker labor force participation, reflecting weaker confidence in job prospects.
As for the euro zone, industrial production also missed expectations, contributing to the shared currency’s slide. Final CPI readings were unchanged at 0.2% for the headline reading and 0.8% for the core figure.
There are no major reports due from both Australia and the euro zone today so a bit of consolidation could be seen or the pair could react to risk sentiment. Weaker risk appetite tends to favor the lower-yielding euro compared to the commodity currency.
By Kate Curtis from Trader’s Way