Weekly Forex Update: EUR/AUD

The EUR/AUD “cross rate” has become an interesting pair, given the current turmoil in Europe sending the Euro lower in what traders are calling a death spiral for the Eurozone currency.
The EUR/AUD “cross rate” has become an interesting pair, given the current turmoil in Europe sending the Euro lower in what traders are calling a death spiral for the Eurozone currency. The Australian Dollar, by comparison, is still quite strong – the currency has rallied over the past year, though during the last six months it’s been trading in more of a wide, sideways range. During that time, prices have bounced against a ceiling four separate times, signaling that sellers are keeping the bulls from making higher highs. This strength in the Aussie dollar has kept the downtrend on the daily chart intact, and this downtrend has nearly reached the downtrend line resistance of a Channel Down pattern. The Australian Dollar continues to be supported by a strong commodities sector that, while not necessarily rallying, has stayed elevated near the highs of the past year, and this can be seen through the Aussie dollar’s correlation to the Continuous Commodity Index futures contract.

The Channel Down pattern on the daily chart has a Length of 61 candles, which means a downtrend of nearly three months. The overall downtrend of this cross-rate is far more established than even that, however, because lower lows have been made consistently since March of 2009. Given this information, Autochartist’s two-bar Initial Trend reading reflects a transition to a sideways market, but should be seen more as a short-term reflection of range-bound price action. The short-sell from resistance at 1.4455 (R) – which would constitute an Autochartist Continuation of the Trend (A.C.T.) entry – is now nearing the downtrend line trigger; should prices head lower, the 1.4050 level (S) will act as both support and a potential breakdown level. Be wary of trading a potential pattern reversal to the upside too aggressively, though, because resistance waits between the past highs of 1.4491 and 1.4514. Buyers too eager to support a reversal of this established downtrend might be fooled into thinking a rally above 1.4500 could be bullish; instead, because of the negative sentiment accompanying the downtrend, any rally will likely be sold into even above this level.

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