EURAUD has just gotten rejected on its test of the range resistance at the 1.6200 major psychological level and is now headed towards support at the 1.5600-1.5650 area. This follows the formation of a double top pattern visible on the short-term time frames and a neckline breakdown, indicating that price could fall by an additional 400 pips from its current levels.
Traders hoping to catch the downside momentum could still hop in the ongoing selloff, which has around 200 pips to go until the near-term support. Stochastic and RSI are on the move down, confirming that bearish momentum is still in play. However, the 100 SMA is above the 200 SMA, suggesting that the uptrend might resume at some point.
Those bullish on this pair could wait for an actual test of support before going long and for the oscillators to indicate oversold conditions. A bounce off the range support could mean another move up to the resistance while a breakdown could spur more longer-term losses for the pair.
The euro zone flash CPI readings indicated that deflation has returned to the region, with the annual CPI for September showing a 0.1% decline in price levels versus the projected flat reading. The core CPI held steady at 0.9% as expected. Underlying components of the report show that energy prices were mostly responsible for the negative headline figure, which revived talks of further ECB easing.
Last month, ECB Governor Draghi admitted that inflation could turn negative in the coming months and that policymakers are open to expanding their stimulus program if deflation becomes a huge concern. However, some say that oil prices may have already bottomed out and that the CPI could return to positive territory before the next ECB statement in October 22.
As for the Aussie, the currency is currently drawing support from official PMI readings from China, which came in line with expectations. The government figures indicated small improvements while the Caixin reading was revised slightly higher from the initial estimate. Australian retail sales are up for release tomorrow and a 0.4% rebound is expected, possibly giving more support for AUD.
By Kate Curtis from Trader’s Way