EUR/AUD Eyes Downside as Head and Shoulders Pattern Completes
Market Overview
On Tuesday, the EUR/AUD pair faces selling pressure as the Australian dollar gains momentum in a risk-on environment. The euro is under pressure due to weak economic data from the Eurozone, which reflects cautious investor sentiment towards the currency. In contrast, the Australian dollar (AUD) is gaining preference over the New Zealand dollar (NZD) and the Canadian dollar (CAD), driven by expectations of sustained strength supported by favorable global risk sentiment. The Reserve Bank of Australia (RBA) is expected to maintain its steady policy stance, which, unlike market expectations for rate cuts, is likely to provide additional support to the AUD. However, it is all depends on the Wednesday’s inflation figures.
Technical Analysis
On the daily chart, the EUR/AUD pair has formed a bearish outlook following a previously sustained uptrend, culminating in a head and shoulders pattern. This classic reversal pattern suggests a shift from bullish to bearish momentum. The neckline breach indicates that sellers are attempting to break below the critical support level at 1.64507. A successful break below this level could pave the way for a further decline towards the immediate support zone between 1.64152 and 1.63618, which aligns with the 100-day moving average.
If this support zone fails to hold, the next downside targets are set at 1.63202 and 1.62313, suggesting a continuation of the bearish trend. The completion of the head and shoulders pattern reinforces the bearish sentiment and implies that the path of least resistance is to the downside.
Oscillators Confirmation:
RSI (Relative Strength Index): The RSI is moving in bearish territory, indicating that selling pressure is increasing, supporting the bearish outlook.
MACD (Moving Average Convergence Divergence): The MACD line remains below the signal line, although in mixed territory, suggesting a potential consolidation phase before any further decline.
Moving Averages: The price is trading near the 100-day moving average, a significant support level. A decisive move below this average could confirm the bearish continuation.
Alternative Scenario
Should the price reverse and break above the right shoulder at 1.65812, it would invalidate the head and shoulders pattern and signal a resumption of the bullish trend. This scenario would suggest that buyers have regained control, potentially driving the price higher towards the resistance levels.
Key Levels
Resistance Levels:
- Resistance 3: 1.65812
- Resistance 2: 1.65006
- Resistance 1: 1.64507
Current Price (at the time of analysis): 1.64542
Support Levels:
- Support 1: 1.64152
- Support 2: 1.63618
- Support 3: 1.63202
- Support 4: 1.62313
Key Events to Watch
Several economic events could influence the EUR/AUD pair this week:
- Australia’s Monthly Inflation Report (Wednesday): The key inflation report is expected to show a significant decline in headline inflation from 3.8% to 3.4%, thanks in part to government rebates on electricity bills. A lower-than-expected inflation reading could further support the AUD by reducing the pressure on the RBA to cut rates.
- Construction Work Done Index (Australia, Wednesday): This data will provide insights into the construction sector’s health, potentially impacting the AUD.
- Eurogroup Meeting (Wednesday): Eurozone finance ministers will discuss economic conditions, with any comments on monetary policy or economic support measures likely to affect the euro.
- ECB Speeches (Wednesday and Thursday): Speeches from European Central Bank officials could provide further insights into the future of monetary policy, potentially influencing the euro.
Conclusion
The EUR/AUD pair is under pressure as the Australian dollar gains strength amid a favorable risk-on environment, while the euro struggles with weak economic data. The technical setup indicates a bearish bias, with a head and shoulders pattern suggesting further downside potential. Traders should monitor key support and resistance levels and upcoming economic data releases to navigate potential market movements effectively. The current technical and fundamental outlook favors further declines in the EUR/AUD pair, but caution is warranted given the potential for volatility around key economic releases.
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