Australian Dollar Reaches Key Level Against the Euro, and Rotates

The Euro to Australian Dollar exchange rate (EUR/AUD) has been sliding lower in a neat descending channel over the last ten months.

Since touching the lows of the Channel in February it has rebounded higher and moved up to touch the channel highs on Monday March 27, only a few days ago.

Whether or not the Euro’s newfound strength combined with the threat of a  technical breakout is sufficient to drive a bullish breach of the channel, is the question Richard Perry, market analyst at FX Broker Hantec poses when he makes the pair the subject of his ‘chart of the day’.

“Has the rally within the channel again failed at key point? The big downtrend channel that has been pulling the pair lower in the past 10 months but once more the market appears to have failed at the key test. This comes with the rally being hit with a strong bear candle from yesterday’s session,” notes Perry.

Looking the chart of the pair we see that the pair did form an important technical reversal pattern called a ‘two bar reversal’ at the upper edge of the channel on Monday and Tuesday and has declined today.

This is a strong sign that the pair will start going lower again within the parameters of the channel.

A further bearish sign is the forceful follow-through lower today (Wednesday).

The next major support level for the pair is at the 50-day at 1.4003, and the exchange rate is expected to stall at that level unless a strong driver forces a breakdown.

Despite these negative indicators, Perry notes strong upside momentum in the prior move, especially as measured by MACD which is still rising bullishly.  

“Momentum indicators remain strong however the RSI has turned lower from the low 60s again, where previous rallies within the trend channel have failed,” said the analyst.

Intraday charts with lower timeframes suggest stronger indications of reversal.

“The hourly chart shows a loss of momentum with a break below 1.4200/1.4215 suggesting the rally has lost its way. Furthermore, continued failure below the previous support at 1.4150 would add to the corrective outlook and open a test of the key near term support at 1.4050, which is just under the long-term pivot at 1.4070,” said Perry.

GBP/AUD

Against the Pound, the Australian Dollar has likewise recovered, after taking a battering in preceding days, as Theresa May is expected to officially trigger Brexit this afternoon (Wednesday 29).

This may have led to the gap down below the 50-day moving average in the pair this morning.

GBP/AUD had been on course to make a reversal higher after breaking convincingly above the downtrend line drawn from the January 2017 highs, however, the timing of Brexit has completely reversed the upside bias of the pair, which peaked at 1.6571 only to now be trading at 1.6237.

The pair formed a Japanese candlestick pattern called a “tweezer top” at the 1.6571 highs. This pattern is characterised by two adjacent days making similar highs.

Both ranges tend to have a similar resemblance too, in which the real body occurs in the lower half of the range – thus giving the long upper wick a ‘tweezer’ shape.

Whilst it is too early to discount the uptrend yet and the pair could very well recover, and given the largely symbolic nature of the article 50 announcement we do not yet view the very short-term trend as having reversed yet.

Nevertheless, it is worth noting that the MACD momentum indicator in the lower panel appears to have formed a complete three wave zigzag which seems to throw up the possibility of a move back down from this point.