EURAUD Channel Break Correction (Sep 30, 2016)

EURAUD was previously trading inside an ascending channel on its 4-hour time frame before breaking lower and showing that a reversal is due. Price has found support near the 1.4600 mark and has pulled up from its dive to retest the broken channel bottom around the 1.4700 major psychological level.

 

Applying the Fib tool on the latest swing high and low shows that the 23.6% retracement level lines up with the broken support area and might be enough to keep further gains in check. A higher retracement could last until the 38.2% Fib which is near the moving averages.

 

The 100 SMA is still above the 200 SMA for now so the path of least resistance could be to the upside. However, the gap between the moving averages is narrowing so a downward crossover could be due. Also, stochastic is nearing the overbought zone and a turn lower could draw more euro bears to the mix.

 

News of hedge funds moving their derivatives holdings away from Deutsche Bank inspired risk aversion in recent trading sessions, triggering a flight to safety in financial assets. However, the euro managed to hold on to its gains against the Aussie, which is a higher-yielding and riskier currency.

 

Economic data from the euro zone came in mixed, as German and Spanish flash CPI readings beat expectations but the German unemployment change report showed a 1K rise in joblessness versus the projected 5K increase in hiring. There were no reports out of Australia yesterday but the commodity currency could still draw support from the lack of dovishness in the RBA minutes released earlier in the month.

For today, Australia will release its numbers on private sector credit and HIA new home sales. The Chinese Caixin manufacturing PMI is also due and a rise from 50.0 to 50.1 is eyed for September, likely shoring up demand for the Aussie, especially if the actual results beat expectations.

 

By Kate Curtis from Trader’s Way