Potential Signal:
- Entry: Sell below 1.6000
- Stop Loss: 1.6100
- Take Profit: 1.5700
- Risk/Reward: Approx. 1:3
- Bias: Bearish
The euro tried to gap higher and rally on Monday but simply cannot get off the floor against the much stronger Australian dollar. This is a market that is trying to break through a massive support level at this point.
EUR/AUD
The euro has drifted a little bit lower against the Aussie dollar after initially gapping higher, bouncing from significant support. This initially looked like a good sign for the euro, but as time wore on, the euro wobbled a bit.
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Currently, the Australian dollar is benefiting from expectations that the Reserve Bank of Australia could raise rates again. Governor Bullock's recent inflation warning has strengthened the Australian dollar rate-support story. While the euro is under pressure from a stronger U.S. dollar and renewed European political uncertainty, the ECB is also tightening, but the market currently sees the Australian inflation problem, and therefore the RBA response, as more immediate. This is a situation where the interest rate differential continues to be a situation that is running everything in this pair.
The fundamental picture is obviously bearish.
The market has dropped, and short-term rallies are more likely than not to continue to be selling opportunities. It's worth noting that there is a big zone of support from 1.60 to the 1.61 range. The overall rally that we had seen from this area last time was basically just one session, and if we were to break down below the 1.60 level, we could see this market really fall apart.
It's not until we break above the 50-day EMA that maybe we could go looking to the 200-day EMA, but that would take a significant shift in expectations coming out of Australian central bankers. The euro itself faces major headwinds this year, potentially due to energy shock problems. Ultimately, I remain bearish.
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