Key Points:
- Reversal is already underway and ABC pattern could see a solid rally.
- Stochastics in oversold territory which will generate some buying pressure.
- Fundamentals aligning with technical bias.
The EUR/AUD has been under fire over the past few weeks with broadly weaker Eurozone data mitigating the effects of any burstsin buying pressure. As a result, the pair has struggled to move above the central tendency of the falling wedge structure but this trend could be about to come to an end. Specifically, a number of technical forces are aligning which could be about to see the EUR take some serious ground back from its Australian counterpart.
Primarily, the overarching, if somewhat messy, ABC pattern is practically begging for a corrective surge in the near to medium-term. As shown below, the wave which started mid-January has been largely ready to end for a number of weeks. However, the slew of weaker Eurozone economic news items has been dampening the ability of the pair to push above the central tendency of the falling wedge and test the upside constraint.
Whether or not this corrective surge can see the wedge broken entirely is unclear at this junction. However, it should be able to produce the momentum needed to see the upside challenged properly. Moreover, the loose three-drive pattern that has developed on the shorter timeframe charts is also indicating that this could be the rally that sees the psychological price barrier around that central tendency breached.
Staying with the shorter timeframe charts, the MACD oscillator has recently had a crossover which will be generating some positive sentiment for the pair. Likewise, the movement of stochastics into oversold territory will be helping to encourage buying pressure moving forward. In isolation these two readings would generally be unable to inspire a rally of the magnitude forecasted here but, when combined with the developing chart patterns, this time we could have some sizable upsides on offer.
From a fundamental perspective, the recent fears raised about the health of the Australian economy will also be playing into the hands of those bullish on the EUR/AUD. More specifically, the recent contractionary quarter of GDP growth and the damage that lower commodity prices have done to the mining reliant economy are beginning to generate some trepidation about the nation’s future.
Ultimately, even if the rally once again falters as it hits that central tendency, there is still some near-term bullishness for this pair. However, do keep an eye on both the technicals and fundamentals as the EUR/AUD reaches this key level as they could give some clues as to whether or not the pair is finally going to surge up to the upside constraint.