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EURAUD Bull Flag Could be in Play Soon

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Following an 800 pip rally from May 26th to June 10th, EURAUD began digesting gains in the form of a bull flag pattern. Those familiar with the pattern will know that it often leads to a continuation of the prevailing trend.

Although I’m hesitant to buy the Euro, I’m just as hesitant to buy the Australian dollar, perhaps more so. And between the two the Euro has shown more resilience over the past few weeks. Combine that thought with a well-defined pattern such as this bull flag and we may be on to something.

As with all technical patterns, a close beyond either boundary will be the deciding factor. In this case the 4 hour chart appears to be respecting both levels, therefore a 4 hour close above resistance should be enough to trigger a continuation of the uptrend. Of course those looking for a bit more conviction can wait for a daily close beyond the level.

If this is indeed a bull flag, we can look for a measured move of about 800 pips, which would place the objective at 1.5120. However there is also trend line resistance from the 2014 high that will likely come in around 1.4980. This level also represents the neckline of the head and shoulders pattern that formed in early 2014.

Let me be clear, I am by no means bullish here, at least not yet. The great thing about trading well-defined patterns is that there is no need to commit yourself to being a bull or bear until the market has made the first move. Even then it’s important to remain flexible in your bias.

Summary: Wait for a 4 hour or daily close above channel resistance. Key levels to the upside come in at 1.4750 and 1.4980. Alternatively, a close below support would negate the pattern.

EURAUD bull flag pattern on the 4 hour chart

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