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EURAUD Triangle Bounce (July 21, 2016)

EURAUD has formed lower highs and found support at the 1.4500 major psychological level, creating an ascending triangle pattern on its daily time frame.

Price appears to be bouncing off the support zone and could carry on with its climb depending on today's top-tier events.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. This suggests that a break of support could take place, possibly taking the pair lower by around 1700 pips or the same height as the chart formation. Rallies could also find resistance at the dynamic inflection points around the moving averages. 

Stochastic is on the move up, suggesting that buyers are in control for now. If they continue to keep bullish pressure in play, EURAUD could make it all the way up to the triangle resistance at 1.5250-1.5300 or at least until the middle of the triangle around 1.5000 where an area of interest is located. 

The main event for this pair is the ECB interest rate decision, as analysts are divided on whether the central bank would announce additional stimulus measures or not. Governor Draghi seemed more dovish in the aftermath of the EU referendum but now that the political uncertainty has subsided, policymakers seem less worried about economic repercussions. 

Data from the euro zone has been mostly weaker than expected as the ZEW economic sentiment indices from Germany and the region fell sharply to negative territory. Consumer confidence also weakened to show a larger degree of pessimism.

160721_euraud

 

As for the Australian dollar, the downbeat RBA minutes are weighing on the currency since policymakers expressed some concern about their inflation outlook. The Aussie has also given up ground on risk aversion for the past few days. 

By Kate Curtis from Trader's Way

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