The Euro tried to rally against the Aussie dollar, but it looks like the momentum is starting to run out. With this, we ask whether or not the momentum is able to continue?
Euro/Australian Dollar
Daily Forex, this is Christopher Lewis taking a look at the Euro against the Australian Dollar.
The Euro initially did try to rally a bit against the Australian Dollar during the trading session on Wednesday as we continued to dance around the 1.66 level. The market is showing signs of exhaustion though, and we have been in a pretty significant sell-off previously.
At this point I think if the 50-day EMA is violated to the upside, it could invalidate this potential pullback. But if we break below the 1.66 level, I think it's very possible that we will continue the downtrend.
Central Bank Divergence and Market Sentiment
Keep in mind that this market selling off would be a pretty acceptable reaction to the fact that central banks around the world are converging and while the ECB may get a little tighter, the reality is that the Reserve Bank of Australia is much tighter than the ECB.
I also think that if we get more of a risk-on type of move, it will make certain amount of sense that the Australian Dollar attracts quite a bit of attention. It is a commodity and risk-on type of currency that a lot of people run to.
The interest rate differential continues to be reduced if you're short and I would not be surprised at all to see this market revisit the 1.62 level. If we break above the 50-day EMA, then the 1.70 level I think is your next major barrier.
This has been a little bit of a parabolic move, so I think a sell-off here makes sense if for no other reason than a bit of a reversion to the mean. I'll watch this pair very closely. I think it's got a nice setup coming.
Potential signal: I am selling at 1.6590 with a stop at 1.6660. I will aim for 1.6350 below.