EURAUD failed to break past its double bottom neckline the other week but it still seems to be forming another reversal pattern on the 4-hour time frame. Price is still in the middle of completing its right shoulder on the inverse head and shoulders pattern, as a bounce off this 1.4650 minor psychological support could send the pair back up to the neckline around 1.4900.
A break past the neckline resistance could take EURAUD up by around 500 pips, which is roughly the same size as the chart formation. However, a break below the 1.4600 mark could send the pair to the bottom of the range around the 1.4400 major psychological level.
The 100 SMA is above the longer-term 200 SMA on this time frame so the path of least resistance is to the upside. The gap between the moving averages is widening, reflecting strengthening bullish pressure. Also, stochastic is on the move up to confirm that buyers are in control of price action.
The main event risk for today is the ECB interest rate decision, as aggressive easing measures could send the euro lower across the board. Traders are expecting anything from changing the QE parameters to additional asset purchases or lower deposit rates. However, less dovish moves could prove to be a disappointment and allow a strong bounce for the shared currency.
Earlier today, Australia reported a smaller than expected trade deficit for July but the Aussie was barely able to benefit since China’s trade balance for August printed weaker than expected results. Still, the Aussie could stay afloat since the RBA refrained from cutting interest rates in their policy statement this month.
Medium-tier reports are lined up from the euro zone for Friday while the rest of the top-tier releases from Australia are due next week. China also has its industrial production and retail sales figures lined up in the coming week.
By Kate Curtis from Trader’s Way