Key Points:
- The recent rout seems to have lost its momentum
- Support is relatively robust around the current level
- The EMA bias remains staunchly bullish
The EUR/AUD is worth a look in this week as a decent, albeit simple, reversal set up seems to be forming which could see some gains back on the menu. Any subsequent recovery is unlikely to erode all of the losses seen over the past week or so but the resulting gains could still be worth considering for those looking sidestepping some of the FOMC volatility.
Taking a closer look at exactly what is going on, the first thing to note is that selling pressure has been decelerating over the last few sessions and now seems to have stalled at the 1.4853 support. Nevertheless, this isn’t entirely surprising given the presence of the 23.6% Fibonacci retracement around this price and the movement of stochastics into oversold territory. As for what this means going forward, we can expect that the current support acts as a cap on downside risks and we should also see the bulls wade back into the fray – potentially pushing the pair higher once more.
Indeed, future upside action is looking rather likely which is due in no small part to the EMA bias. Specifically, despite the more than 300 pip rout from the 1.52 handle, the moving averages remain staunchly bullish. As illustrated, the 12 and 20 day averages have yet to crossover and both of these remain well and truly above the 100 day average. Combined with the robust zone of support already discussed, it looks as though there is little where for the pair to go but up – from a technical perspective at least.
In the event that we do see this rally take hold, we don’t quite expect it to entirely erase the last few weeks’ losses but it will go a long way in recovering some the slip. In particular, we suspect that upsides may run into some stiff resistance at the 1.5099 handle which represents a historical turning point. Furthermore, the parabolic SAR bias remains above price action which would suggest that we may have actually entered a medium-term downtrend that could also help to prevent a full recovery from taking place.
Overall, the outlook is somewhat in the bulls favour moving ahead but they may lose out to the bears in the medium to long-run. As a result, pay particular attention to the technical readings and the fundamentals as the EUR/AUD reaches that 1.5099 handle has it could prove to be the start of yet another slide for the pair.