EURAUD has formed a double bottom on its 1-hour time frame, signaling that price may be tired from its drop. The pair has yet to break past the neckline around 1.4550-1.4600 before confirming the potential climb.
The chart pattern is approximately 400 pips tall so the resulting breakout could be of the same size. However, the 100 SMA is below the 200 SMA to show that the path of least resistance is to the downside. Stochastic is also indicating overbought conditions, which means that buyers need to take a break and let sellers take over from here.
In that case, EURAUD could make its way back to the nearby support at the 1.4100-1.4150 area. A bounce off this region could trigger another test of resistance while a surge in bearish pressure could spur a breakdown.
The euro is currently weighed down by concerns about the French elections and Italian referendum. Over the weekend, former French President Nicholas Sarkozy lost the majority and has endorsed Francois Fillon who will go head to head with Le Pen, who is rumored to push for a French exit from the euro zone.
Data from Australia has been mostly weaker than expected, with the RBA minutes hinting that an accommodative policy stance could be maintained. Aside from that, yuan devaluation also appears to be dampening the Aussie’s gains since this move is keeping a lid on iron ore prices abroad.
The euro zone has flash PMI readings lined up this week while Australia has its quarterly construction work done report due for release. Market sentiment could play a key role in price action as it had for the past few weeks.
By Kate Curtis from Trader’s Way