The EURAUD has been on a tear so far this month. The current 430 pip rally comes on the back of an 860 pip decline that commenced with the April 25 bearish pin bar.
But this month’s gains have more to do with Australian dollar weakness than Euro strength. Neither currency has been strong relative to the greenback, but it’s clear from the chart below that the Australian dollar has been the weaker of the two.
However, that may be about to change. The Euro cross is fast approaching a level that could pose a problem for buyers.
The 1.5775 handle has had a significant influence on the pair since the 2017 high carved on December 1st. Since that time, the EURAUD has reacted to 1.5775 as both support and resistance on multiple occasions.
Perhaps a more significant development, though, is the potential 970 pip head and shoulders that has developed since the 2018 low at 1.5154.
To be clear, the structure below is purely speculative at this point. It’s going to take a rejection from the 1.5775 area followed by a close below the neckline near 1.5320 to confirm the massive (potential) reversal pattern.
I may decide to front run a move lower, but only with the right bearish price action following a retest of 1.5775. If a sell signal doesn’t materialize, I will stand aside.
Should the EURAUD confirm the reversal pattern, a move to the July 2017 low at 1.4420 should not be ruled out. That’s about 1,350 pips from the 1.5775 region.
Alternatively, a daily close (New York 5 pm EST) above 1.5775 would make the task for sellers that much more difficult. And a move above 1.6000 would all but negate the pattern.
I’ll be the first to admit that the notion of buying the Australian dollar right now is unsettling to say the least. That said, the Euro hasn’t fared much better and is currently hanging by a thread against the U.S. dollar.
With that in mind, it isn’t all that difficult to envision a lower EURAUD.