Today’s post will cover the technical analysis of the EURAUD. Jack mentioned this currency pair during a chat of ours below an article this week (click here for the link to that post). Please join the discussions as well by posting comments below the articles! Right now the Euro has been strong across all currencies it will interesting to see if it can continue read the article below to find out.
**Reminder: We suggest that you consider all analysis and trade ideas IN COMBINATION with the understanding of our Double Trend Trap Strategy
What is the EURAUD up to?
Without doubt the weekly chart is trending up but the last few weeks the EURAUD has made a sturdy fall (time will tell whether it’s a reversal or retracement). This downside momentum slowly dried up as the weekly chart posted a weekly Doji candle and an inside candle the last 2 weeks. With last week’s weekly high already broken, the turn back up could be back in the picture.
This question is best answered by placing the Fibonacci retracement levels on the daily chart. There are three Fib retracements (green, magenta, orange) in the screenshot below. Each is placed on a different swing high swing low.
- The green Fib is placed from bottom to top of the last swing high swing low of the weekly
- The magenta Fib is placed on the very first down move
- The orange Fib is placed on the most recent swing high swing low
What do the Fibs show?
The Fibs tell us that price has stopped at a confluence of the -27.2% Fib target (magenta) and 61.8% retracement Fib (orange). Not only did price stop, but it actually bounced up and broke the down trend line (purple).
With this break of the trend line, there is a fair chance that the swing high swing low on the orange Fib has been completed. This momentum has run its course and there is good probability of retracing this leg.
How far can the turn proceed?
Price is about half way between the 23.6% and 38.2% Fibonacci retracement but these are considered to be shallow Fib levels. Not many times will price a very shallow Fib such as the 23.6%, especially if the weekly chart had so much upside momentum relatively recently (see green Fib).
In our live trading room we therefore concluded that a bigger retracement on the EURAUD at least up to the 38.2% or 50% Fibonacci retracement was a decent probability, which seems likely at the moment.
So there is space to the upside?
Yes, at least there is space towards the daily Fibs. It does not necessarily mean that price must turn for more downside at these Fibs; price could turn at higher Fibs as well such as the 61.8% or 78.6% or even continue to post higher highs and start and uptrend.
What potential trade setups are available?
For the moment, dips and a retracement of the daily candle could have decent expectancy when targeting the 38.2% or 50% Fib. Even a trailing stop loss could do well as upside momentum picks up speed.
Then there is also the potential trade at the orange Fibs. However, because the Fib is large in terms of the pip size, I am waiting for bearish price action signals on the daily charts at any of the Fibs (from 38.2 to 88.6) for a confirmation of such a turn.
A break of the support has a high chance of translating into a break down towards the confluence of all 3 Fibs: a 78.6% retracement (green), a -61.8% target (magenta) and a -27.2% target (orange).
Take a look at the 2 main scenarios mentioned in the screenshot with the circles providing an idea where the best trades could be.
What part do you find most interesting to trade? Let us know!
Thanks for sharing and Happy Trading, Chris
Latest posts by Chris Svorcik (see all)
- EURJPY and GBPJPY Face Struggle as the Yen Weakens - July 29, 2014
- Big Trend Warning: the US Dollar Ready for Major Lift Off in 2nd Half of 2014 - July 24, 2014
- EURCAD Continues With Down Trend – Is It Ready For Another Setup? - July 23, 2014
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