EUR/AUD – Bearish Correction; Wave Structure

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EUR/AUD - Bearish Correction; Wave Structure

The EUR/AUD has been bullish since mid-November when it found a price bottom above 1.4210. After a mostly sideways market in November, the EUR/AUD began to take off in December, rallying to 1.5332 before stalling last week.

EUR/AUD 4H chart 12/26
euraud 4h chart 12/26
(click to enlarge)

The 4H chart shows that the market has retreated from 1.5332 and has been consolidating roughly between 1.4978 and 1.5123 for a little over a week. As we come get into the Friday (12/26) US session, price is cracking the range support, suggesting another bearish correction leg.

The 4H chart shows that there is a support/resistance pivot around 1.4830-1.4850. We can start expecting some support here. However ,we should also consider downside risk towards the 1.47 handle, below which the EUR/AUD is likely back in a sideways if not bearish mode.

We should therefore look for bullish divergence in the 4H chart between the RSI and price when it is in the 1.47-1.48 area.

The daily chart gives us a reason to favor the bullish outlook in the medium-term, even if the near-term to short-term outlook is bearish.

EUR/AUD Daily Chart 12/26
euraud daily chart 12/26
(click to enlarge)

In the daily chart, we can also see the significance of the 1.47 level. If the market is indeed in a bullish continuation mode after the earlier December rally, it should develop bullish impulse waves – an Elliott Wave concept. The Elliott Wave principle most important for our assessment is that wave 4 should not overlap with wave 1, and therefore a dip should hold above 1.47 if the EUR/AUD is to maintain a bullish impulse wave structure as shown in the 4H chart.

A break below 1.47 is not a good sign for the bullish outlook, and a break below 1.46 would further strengthen a bearish outlook that first has the 1.42-1.4210 area in sight, before opening up the 1.38 low from September.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.