EURAUD Completing A Major Reversal Pattern

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EURAUD might be done with its selloff as the pair is starting to form an inverse head and shoulders, which is a classic reversal pattern, on its 1-hour chart.

Price has yet to complete the right shoulder, though, and then test the neckline at the 1.5600 handle before confirming the potential rally. This chart pattern spans 1.5300 to 1.5600 so a neckline breakout could spur a rally of the same height, taking it up to 1.5900 and beyond.

The 100 SMA has just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. This means that the uptrend is more likely to continue than to reverse. The short-term moving average also recently held as dynamic support on the latest pullback.

RSI is on the move up to signal that buyers have some energy left to push higher, but stochastic is turning lower from overbought territory to reflect a return in selling pressure.

The euro has come a long way since selling off around the time of the political crisis in Italy, recovering when the coalition was finally formed and leaders stressed their commitment to the euro.

In contrast, the Australian dollar has lost ground as it trailed gold prices in slumping to risk-on moves recently. RBA Governor Lowe also recently had a speech and his lack of hawkishness kept Aussie gains in check.

Looking ahead, persistent trade jitters could also keep dampening demand for the Aussie as the US refuses to waver on its tariffs on trade allies. Retaliation could wind up dampening global demand for commodities, which would be bearish for the Australian dollar.

As for the euro, the improvement in sentiment after the UK reached a “meaningful vote” in Brexit bill amendments also lifted the shared currency. Whether this could last remains to be seen, but it’s also worth noting that upbeat expectations for the ECB decision later this week are also lifting this pair up.

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