By: Christopher Lewis
EUR/AUD is probably the trade you have missed. The pair broke through the 1.29 level back in December, and while you weren’t paying attention: The pair just broke through a 20-year consolidation rectangle. This kind of move doesn’t happen very often, and it should make you sit up and take notice.
The reaction in the various forums reminded me of when the AUD/USD finally smashed through the 0.80 level. There were a few people saying that the Aussie was going to continue to climb against the Dollar, and as a result you should be long. Most people though, well…..just couldn’t believe it. It simply HAD to pullback and turn around – it was too high. Looking back, that was a quant idea. I was one of those people that suggested that the Aussie had to fall. This is a lesson I will never forget.
If the Aussie can increase in volume like that over the Dollar, it certainly can against the Euro. After all, the Euro is representative of an area that is going to have issues for years. On top of that, if the global economy picks up – the pair will also fall as more and more commodities are purchased. In a sense – this pair is the perfect one to trade at the moment. Sort of a “Heads I Win, Tails You Lose” scenario.
Consolidating before the fall
This pair shows absolutely no signs of stopping. Sure, the recent action has been consolidative, but the fall before it was 500 pips in just a few weeks. Also, if you have been one of these traders that are short of this pair, you have been getting paid to wait in the form of a positive swap. At this point, I have two areas I am watching: The 1.25 level and the 1.2220 level.
This rectangle that we have formed is an obvious signal to technical traders. Because of this, I absolutely love this pair. The more obvious, the better. I know that most have you have heard over and over about how you have to “go against the herd”. Good luck with that, as you need the herd to push prices in your direction. This herd is strong, and so strong in fact – I feel this pair goes to parity. (Not this year however.) I am short of this pair already, and will add to my position on a sub-1.22 daily close.