Key Points:
- The pair is testing the downside of the wedge structure.
- Stochastics are highly oversold.
- Reversal now looking fairly likely.
If you’re looking for something a bit more exotic than the majors, the EUR/AUD could be worth taking a look at over the coming sessions. Specifically, the recent spate of losses experienced by the pair has seriously tested, but ultimately failed to break, the downside constraint of the long-term wedge which could now lead to a reversal.
As is shown below, this wedge stretches back more than half a year and has proven to be rather resistant to attempts to break free from its constraints. This reluctance to allow the pair to break free is notably more evident on the downside which has been tested relentlessly yet remained firmly intact. As a result, we expect this latest attempt to push lower to be met with a similar outcome, leaving the EUR/AUD with little choice but to reverse.
What’s more, this reversal is probably not too far away from occurring given the rather oversold stochastics readings. However, we could see losses extend slightly further in the near-term as, despite being close to doing so, the RSI bias hasn’t yet strayed into oversold territory. When this oscillator finally does mirror the stochastic bias, we should see buying pressure return and the forecasted rally take hold.
As for exactly where we can expect to see this pair rally to, gains should be capped around the intersection of the 38.2% Fibonacci level and the upside of the wedge. This point should fall somewhere between the 1.42 and 1.43 handle unless we have a strong fundamental surge higher in the next week or so.
It’s also worth mentioning that despite the near-term bullish bias, the overall bias for the EUR/AUD remains bearish. One only has to take a cursory glance at the daily EMAs to understand why this is the case. As a result of this, chances of an upside breakout from the wedge structure remain fairly remote in the absence of some major upset on the fundamental front.