EURAUD looks ready to make a reversal from its recent uptrend, as price may be forming a head and shoulders forex reversal setup on its 4-hour time frame. The pair has yet to form the right shoulder before completing the chart formation and break below the neckline before confirming the selloff.
A short-term pullback might be possible until the area of interest around the 1.4700 major psychological handle could take place. If this area holds as resistance and EURAUD undergoes a pickup in selling pressure, the forex reversal pattern could be completed.
Forex Reversal Outlook
The path of least resistance is to the downside for this pair, as commodity prices are already starting to bottom out and provide additional support for commodity currencies like the Australian dollar. Meanwhile, talks of a potential Greek exit from the euro zone are dominating the headlines as the country is struggling to fix its debt situation.
Apart from that, the ECB is in a more dovish position compared to the RBA, as the former just cut several interest rates last year and implemented a quantitative easing program this year. Earlier in the week, Australia printed stronger than expected employment data, which could mean better economic prospects for the country in the coming months.
A confirmation of the forex reversal could lead to a selloff of around 500 pips, which is the same height as the chart pattern. This could lead to a move until the 1.4000 major psychological support or at least until the next visible area of interest near 1.4200.
On the other hand, if the head and shoulders pattern is invalidated, EURAUD could climb back to test its recent highs around the 1.4900 major psychological resistance level. There are no event risks for this forex reversal setup today, as there are no reports due from both Australia and the euro zone in the upcoming trading sessions.
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