EUR/AUD Forms Short-Term Head and Shoulders Pattern Ahead of European GDP Report
Market Overview
The Australian bond market remains under pressure, with the 10-year yield stabilizing at 4.659% following a temporary surge to 4.721% on Tuesday. This level was last observed in November 2023, reflecting tighter financial conditions as global bond markets continue to face headwinds. Over the past month, yields have risen by 45 basis points, further exacerbating domestic financial tightening in Australia and heightening expectations for reduced official rates.
Meanwhile, the euro has lost some of its appeal amid a stabilizing US dollar during European morning trading. Investors are proceeding cautiously ahead of key economic data, including the US inflation report and the Eurozone GDP figures. This measured sentiment has weighed on EUR/AUD, placing it under increased technical scrutiny.
Technical Analysis
On the 30-minute chart, EUR/AUD is currently shaping a classic head and shoulders pattern following a brief short-term rally. The neckline of this pattern is positioned at 1.66263, and its breach by sellers would signal the completion of the formation. Once confirmed, the bearish pattern could trigger a fresh downward phase, with projected targets at 1.66215, 1.66153, and 1.66085, depending on the strength of the downward momentum.
Momentum indicators corroborate this bearish outlook. The RSI has shifted downward, indicating increased selling pressure, while the MACD histogram highlights growing momentum favoring the sellers. Despite these bearish indicators, traders should exercise caution, as short-term patterns like the head and shoulders tend to carry a lower reliability.
Should buyers manage to regain control, surpassing the 1.66441 resistance would invalidate the bearish setup. Such a breakout would signify renewed bullish momentum, likely encouraging traders to adopt a more optimistic stance on EUR/AUD in the near term.
Key Resistance and Support Levels:
- Resistance 3: 1.66441
- Resistance 2: 1.66331
- Resistance 1: 1.66263
- Current Price: 1.66295
- Support 1: 1.66263
- Support 2: 1.66215
- Support 3: 1.66153
- Support 4: 1.66085
Fundamental Drivers
Eurozone GDP Report: The European GDP data, scheduled for release on Wednesday, remains a critical driver for the euro. Market consensus anticipates a 0.2% contraction, raising recessionary concerns for the region. If the reported figures underperform, the euro could face further depreciation.
Australian Employment Report: The Australian labor market update, due Thursday, is another key focus. Expectations suggest a slight uptick in unemployment compared to the previous period. A disappointing result could weigh on the Australian dollar, compounding broader economic concerns.
Conclusion
EUR/AUD’s technical and fundamental setup highlights a precarious balance between buyers and sellers. The completion of the head and shoulders pattern could amplify bearish momentum, while a bullish breakout above key resistance would invalidate this outlook. Upcoming data releases, particularly the Eurozone GDP and Australian unemployment figures, will likely play a pivotal role in determining the pair’s next directional move.
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