EURAUD Short-Term Reversal (July 17, 2015)

EURAUD formed a head and shoulders pattern on its 1-hour time frame, indicating that a reversal from the previous uptrend might be seen. Price is already breaking below the neckline support at the 1.4700 major psychological level and could be in for more declines.

The chart pattern is around 400 pips high so the resulting selloff could last by the same amount. This could take EURAUD down to the 1.4300 major psychological level or lower. However, if the breakdown proves to be a false one, price could still move back up to the previous highs around 1.5100.

Stochastic is moving up but is almost in the overbought zone, suggesting that selling pressure could pick up and push the pair lower soon. RSI is climbing from the oversold region though so buyers could still push for a pullback to the broken support around 1.4700 to 1.4750.

Event risks for this setup include the German parliamentary vote on the Greek bailout proposal, although this is expected to go by without a hitch. After this, Greece has a payment deadline to the ECB on July 20 then the parliament will discuss the details of their economic reforms by July 22. From there, discussions regarding Greece’s third bailout package will begin.

As for Australia, data has shown a few improvements lately, particularly when it comes to inflation expectations. However, the ongoing slowdown in China might affect export volumes in the country and overall commodity prices.

Earlier today, Australia reported a 0.2% rebound in its CB leading index, suggesting that economic improvements could be seen sooner or later. Next week, the RBA minutes are up for release, along with Australia’s CPI figure for June. Upbeat remarks from the central bank and an improved inflation reading could mean more gains for the Aussie.

By Kate Curtis from Trader’s Way