On February 24th, I released commentary regarding EURAUD, noting that the pair had found selling pressure at a familiar level. The level in question was the 1.5340 handle, which has played a role since the year 2000 and is also the December 2014 high.
Since that commentary, the pair has broken through key support at 1.50 and is now 600 pips off of the 1.5340 key level. Those who are still on board are facing an open profit of approximately 6R, or 12% profit if risking 2% of their account balance.
As we head into a week that promises to offer increased Euro volatility, those with exposure to the single currency are faced with an important decision of whether to hold or fold. As for EURAUD, whether or not the pair catches a bid at the upcoming support levels (shown in the chart below) will depend heavily on the outcome of Thursday’s ECB rate decision.
The first level of support is the trend line that extends off the April 2015 low, an area that was also shown in last month’s commentary. A break below that would expose horizontal support near 1.4380 followed by channel support near 1.4140.
I’m a firm believer in the idea that the technicals often foreshadow certain fundamental outcomes. If applied to the current EURAUD technical landscape, a break below trend line support before Thursday’s main event would hint at the idea that Mario Draghi is likely to deliver, if not over-deliver, on the market’s expectations for further stimulus.
That said, when it comes to trading, no outcome is ever guaranteed. Although one could argue that the upcoming ECB decision does offer one guarantee to Forex traders, and that is an increase in volatility coupled with a decrease in liquidity surrounding the event.