Over the weekend I mentioned the idea that EURAUD would likely collapse unless buyers came out in force this week. Based on today’s session thus far, it seems this idea could become a reality in the very near future.
The Euro cross is currently trading at its lowest level since April 22nd and is treading water 50 pips under the four-year support level that extends from the 2012 low.
Here is a look at the broader wedge pattern that extends back to the 2008 high.
Because support has been respected on a daily closing basis over the years, it will take a daily close below it to confirm the setup. That makes the intraday move below the level tentative as it requires more time before it can be considered tradable.
But even if the pair closes the day at current levels, I won’t be interested in taking a position until we see a retest of previous support as new resistance.
My reason for this is three-fold.
- A retest would offer a more favorable risk to reward ratio
- It would create a setup with a higher degree of conviction
- It would “reset” prices as the pair is currently overextended based on the 10 and 20 exponential moving averages
With these three factors in mind, traders can watch for a close below the 1.4570 handle followed by a retest of the area as new resistance. Alternatively, a daily close back above support would postpone the idea.
Further weakness from here would encounter support in the 1.4385 region with a break below that targeting 1.4070 followed by the 2015 lows near 1.3740.
Do keep in mind that Australia employment figures are on tap tomorrow at 9:30 pm EST. As such, it may be prudent to wait for the outcome before considering an entry to avoid getting caught on the wrong side of a volatile market.
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