EURAUD is testing a forex support zone around the previously broken resistance near the 1.4600 major psychological level. Stochastic is suggesting a move higher, as the indicator is climbing out of the oversold zone and reflecting a buildup in buying pressure.
This could lead to a move back to the previous highs close to the 1.5300 major psychological resistance. On the other hand, a break below the area of interest could push price down to the next forex support area at the 1.4250 minor psychological level.
Forex Support Zone
Event risks for this forex support trade include the release of euro zone retail sales report, which is slated to post a 0.3% uptick for December. Falling oil prices probably allowed consumers to spend more of their disposable income on other items, which might mean a stronger than expected retail sales report.
If so, EURAUD could resume its climb, especially since the Australian dollar is being weighed down by the weakness in Chinese manufacturing data and falling gold prices. Risk aversion is also not in the Aussie’s favor for the time being, as traders seek lower-yielding currencies.
However, the euro is also under heavy selling pressure due to the political situation in Greece. Talks of a euro zone exit have been revived, leading to fears of contagion and a repeat of the debt crisis, which might force the ECB to announce actual quantitative easing.
Other catalysts for this trade this week include the release of euro zone CPI, which might see a downside surprise spurred by weak oil prices. Australia is set to print its retail sales report later on as well, along with the release of Chinese inflation readings. Producer prices in the world’s second largest economy are in for another sharp drop, which might mean more Australian dollar weakness and a EURAUD bounce off forex support.
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