It seems the EURAUD didn’t need to wait until 2018 to break wedge support. Wednesday’s 1.5297 close confirmed the breakdown of a rally that began on February 22 and spanned more than 2,000 pips.
We discussed this potential topping pattern on Friday as the pair was bouncing from support at 1.5325. It’s the intersection of wedge support and a level that served as a pivot beginning October 25.
With Wednesday’s close, I suspect sellers will want to defend the 1.5325/60 area as new resistance. Any bearish price action from the region could produce a favorable opportunity to get short.
Keep in mind, however, that the 1.5230 handle could be problematic for bears. I mentioned this area on Friday as one that capped the June and mid-October rallies. As such, we could see some buying pressure here on the way down.
But as long as 1.5360 holds as resistance on a daily closing basis, I will remain relatively bearish the EURAUD. Given the thin trading conditions this week, waiting for bearish price action from 1.5325/60 might not be a bad idea.
The distance between the current price and the 10 and 20 EMAs also suggests that a retracement is likely before the next leg lower. That alone would keep me on the sideline until the price has a chance to ‘reset’ over the coming days.
A daily close (New York 5 pm EST) below 1.5230 would open the door to the 1.5070/80 area followed by the 1.4800 handle.
Alternatively, a daily close back above the 1.5360 area would negate the bearish outlook.