EUR/AUD: V-Shape Reversal Vs. Key Resistance Factors

EUR/AUD: V-Shape Reversal Vs. Key Resistance Factors

EUR/AUD has been bearish since the January-high and high on the year at 1.5831. It has slid to 1.3788 by early September. Since then, we have seen a v-shape reversal and since the last week EUR/AUD has been testing some key resistance factors.

EUR/AUD Daily Chart
euruad 9/22 daily  chart

(click to enlarge)

Key Resistance Cracking:
Looking at the daily chart, we can see that price has now broken a falling trendline that comes down from the high this year, connecting the March high. This breakout has been tentative, and is still holding below the 100-day simple moving average (SMA), and the 1.4478 August high. Unless price breaks above 1.4480, we still have the pattern of lower highs and lower lows. Also the daily RSI is still below 60, which reflects maintenance of the bearish momentum. While the bearish trend still seems to be in play, the V-shape reversal does put the pressure on them, and EUR/AUD looks like it is at the cusp of a strong reversal signal that can establish the September low of 1.3788 as the 2014-low. In this reversal scenario, we should still first limit our bullish outlook to the 1.48 handle, where the 200-day SMA resides.

Anticipating Some Consolidation Due to Strong Bullish Structure:
Let’s go to the 4H chart, where we see a strong rally stalling around 1.44. Elliott Wave practitioners would call the rally in September as having an impulse structure. Now, we have a bearish divergence with the 4H chart. It is possible that a diagonal, or terminal triangle is forming, but to me even if price does fall from 1.44 this week, we have a very bullish structure. I would watch 1.4150, then 1.4050 as key support levels, and expect another bullish attempt.

However, if we find EUR/AUD having trouble to climb back above 1.43, the bearish outlook is probably back in play. A straight break below 1.40 should also signal a bearish continuation.

EUR/AUD 4H Chart 9/22
euraud 4h chart 9/22

(click to enlarge)

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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