Head and Shoulders Formation on EURAUD

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Inverse Head and Shoulders on EURAUD

A classic reversal chart pattern, typically formed at the top of an Elliott Wave impulse set, can be seen on EURAUD’s long-term time frames. On the daily chart, signs of trend exhaustion are evident and a head and shoulders formation can be seen on the chart.

At the end of its Wave 5, EURAUD looks ready to start a reversal as soon as the price breaks below the neckline of the head and shoulders pattern and completes a break below the Fibonacci retracement levels on the last impulse wave. The neckline is located at the 1.5000 major psychological level, which means that a strong catalyst is needed for a selloff.

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EURAUD Corrective Wave Outlook

Earlier today, Australia printed a couple of strong economic figures in the form of its February retail sales and trade surplus. Prior to that, the economy also boasted of a better than expected GDP reading for the last quarter of 2013, adding to support for the Australian dollar.

In addition, risk sentiment has been improving lately, favoring the higher-yielding and riskier currencies such as the Australian dollar. This was spurred by improvements in Ukraine’s political situation, as Russia showed signs of retreating from military intervention. 

Do keep in mind that the ECB is set to make its interest rate decision later today and any indication of negative deposit rates or further easing could get the breakdown for EURAUD rolling. With that, the pair could make a correction back to the 1.4500 major psychological level for its Wave A in the corrective set.

Slow stochastic on the daily time frame is also reflecting an increase in selling pressure, with the indicator crawling down from the overbought region since last week. ADX is on middle ground at the moment, as traders await more signs for a potential breakdown. Take note as well, that the chart pattern is roughly 300 pips high, which means that the resulting breakdown could be at least the same height.

To contact the reporter of the story: Jonathan Millet at jonathanmillet@forexminute.com