EUR/AUD Rejecting a Bearish Attempt at a Critical Juncture

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EUR/AUD Rejecting a Bearish Attempt at a Critical Juncture

The Euro has been weaker than the Aussie since mid December, and the EUR/AUD fell from 1.5332 to about 1.4760.

EUR/AUD 4H Chart 1/5
euraud 4h chart 1/5
(click to enlarge)

Bearish Correction: This decline was going against a prevailing uptrend in the latter part of 2014. Nonetheless in the 4H chart we can see that price fell below the 200-, 100-, and 50-period SMAs and the 4H RSI fell below 30. These are bearish technical conditions.

At the end of the year, we saw a brief, narrow range consolidation. As we start the first full week of the new year, we saw a bearish attempt, which broke below 1.4760, but then was supported at 1.47, which challenges the strength of the bearish attempt.

Bearish Attempt Rejected? If this bearish breakout attempt is followed by a break above 1.4865, we should consider it a false breakout that has translated to a bullish breakout. This scenario would clear a falling trendline from 1.5332, and would at least open up the 1.50 area.

When we look at the daily chart, we can see that the bullish scenario follows an already established trend.

EUR/AUD Daily Chart 1/5
euraud daily chart 1/5
(click to enlarge)

Bullish Trend: The daily chart shows that the uptrend started in September, when EUR/AUD marked the 2014-low at 1.3788. After a multi-month consolidation range, we saw price in another bullish leg in late-November through the first half of December.

Pivot Area: Now, the area between 1.4580 and 1.4705 in a key pivot area, meaning it has been support and resistance. Price action is testing this area as support, and so far showing respect for it, as well as the 50-day SMA.

Bullish Continuation Scenario: With the prevailing bullish trend and momentum intact, a break above 1.4865 does indeed open up a bullish continuation outlook, with upside risk back towards the 1.53-1.5332 highs from December, which still leaves room to the 2014-highs in the 1.58-1.5830 area.

Downside Risk: Within this bullish scenario, there is also downside risk towards 1.4580-1.46, which would be the middle of the SMA cluster, and would likely be pressing against a rising trendline from September. That will be the next and possibly last line of defense for the bullish trend started in 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.