A double top pattern can be seen on the 4-hour chart of EURAUD, signaling that a selloff is in order. Price is still testing the neckline around the 1.5250 minor psychological mark for now and a breakdown could set off a long-term downtrend.
The pattern is approximately 800 pips tall so the resulting breakdown could be of the same size, taking EURAUD down to the next floor at 1.4400. However, technical indicators are hinting that support might hold for now.
The 100 SMA is still above the longer-term 200 SMA although a downward crossover might be taking place. Stochastic is indicating oversold conditions and is moving higher so EURAUD might follow suit. Similarly, RSI is heading out of the oversold region to indicate a return in buying pressure.
In that case, a bounce up to the nearby resistance around 1.5300 could still be possible before more sellers push the pair down. If buying pressure remains in play, a rally back to the tops at 1.6000 could be in the cards.
Event risks for this setup this week include the private capital expenditure data from Australia, as this could indicate how business conditions have fared recently. Data from the euro zone has been mostly weaker than expected, as the flash manufacturing PMI readings from Germany and France have weighed on the shared currency.
German Ifo business climate data is due today and a drop from 107.3 to 107.00 is eyed, likely adding to downward pressure on the euro. Also, Brexit concerns are weighing on currency gains in the European region, as funds are flowing out of the continent into Asia.
Commodity price gains are also supporting the Australian dollar, even as the news has been focused on crude oil prices. For now, this current market sentiment could push for a downside break of the double top neckline.
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