EURAUD Downtrend Setup (Dec 7, 2015)

Price made a sharp pop higher after last week's ECB rate statement but it looks like the falling resistance area is still holding.

This trend line coincides with the dynamic resistance at the 100 SMA, which is below the longer-term 200 SMA and indicating that the downtrend is likely to carry on. In addition, stochastic and RSI moving down from the overbought zones so sellers are ready to take control.

However, the latest formation near the trend line looks like a bullish flag so there might be a chance for an upside breakout. In that case, a reversal from the previous selloff could take place.

There are no major releases out of Australia or the euro zone today, which favors the odds of the longer-term trend resuming. Still, the release of German industrial production data and the euro zone Sentix investor confidence index might provide some volatility if the actual numbers come in above or below expectations.

Analysts are expecting to see a 0.8% rebound in German industrial production, erasing part of the previous 1.1% decline. The euro zone Sentix investor confidence index is slated to rise from 15.1 to 17.2 to reflect stronger confidence.

Later on in the week, data from China could have an impact on the Aussie's price action, as the CPI and trade balance numbers are due. Stronger than expected results could renew demand for the Aussie, especially since the yuan's addition to the IMF's SDR could spur better performance from the Chinese economy.

By Kate Curtis from Trader's Way