Since closing above 1.5720 on June 25th, the EURAUD has been limited to a 150 pip range. The resistance area at 1.5870 has been just as formidable as range support at 1.5720.
It’s been a range traders dream. Those who have sold at resistance and bought at support since late June have gotten it right every time, except for maybe the July 19th intraday decline that stopped out a few longs.
I mentioned it a while back, but it’s worth restating that the pair is at a crossroads. On the one hand, the short-term trend is up, and on the other, the price action since last November has carved a possible topping pattern.
So far, the EURAUD has completed the left shoulder and head of the structure. However, the 150 pip range that’s formed over the last few weeks has delayed the formation of the right shoulder.
As it is, the pending head and shoulders pattern is far from complete. In fact, it’s more than 400 pips above the neckline, which is what would need to break down in order to confirm the reversal.
This suggests that a breakout from the current range between 1.5720 and 1.5870 has broad implications. A break higher would likely negate the pending reversal in the chart above.
On the other hand, a daily close (New York 5 pm EST) below 1.5720 would put sellers one step closer to confirming the 1,000 pip structure.
As for key levels beyond the current range, a close above 1.5870 would expose the 1.6000 handle. Alternatively, a close below range support at 1.5720 would open the door to the 1.5620 area.