Technical Sentiment: Bearish
- HSBC Flash Manufacturing PMI set for release during the Asian session;
- Euro traders are patiently waiting for the Flash Manufacturing PMI and Flash Services PMI;
- EUR/AUD found sellers around a major resistance area;
- Whichever direction is decided upon on Thursday will play out for days to come.
The weakness behind the Australian Dollar has been the main driver for this week’s EUR/AUD rally, yet buyers took a step back on Wednesday at a pivotal price area. Although the trend remains bearish for now, with Lower Highs and Lower Lows, Thursday will be a decisive day for this trend. Traders will weigh in the data from China, putting pressure on the Australian Dollar if it disappoints; while the Eurozone Flash PMI surveys will determine whether the EUR is ready for another rally or not.
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Despite the 300 pip rally between Monday and Tuesday, the daily trend remains bearish for EUR/AUD due to its Lower Highs and Lower Lows formation. This rally corrected 61.8% of the bearish swing from 1.5020 down to 1.4563, ultimately stopping on the 200-Day Simple Moving Average. Additionally, 1.4835-1.4850 has been a tried and tested crucial pivot zone in April and May. With such a strong resistance confluence, it’s no wonder traders aimed at this area ahead of major releases that could change the balance and ultimately the direction of the trend.
If HSBC Flash Manufacturing PMI slumps below expectations, EUR/AUD will rally and break above 1.4872 and the 200-Day Moving Average. 1.5020 is likely to follow in this situation as traders will attempt to push for a Higher High, completely invalidating the bearish trend in the process. This scenario will quickly come to fruition if the Eurozone PMI surveys will print overall positive improvements, aiding the EUR higher.
On the other hand, if HSBC Flash Manufacturing PMI is within expectations or above, EUR/AUD downtrend may continue. This will only happen if the EUR will not receive a boost from the Flash PMI surveys. Below 1.4800 EUR/CAD will already be in bearish territory, thus a continuation lower is due, toward 1.4700, 1.4563 and eventually for a fresh Lower Low.
There are two more combinations possible: both the EUR and the AUD will show weakness, respectively strength. Fortunately there is a sufficient time difference between the reports and traders are very likely to respect the resistance confluence. As a rule of thumb, EUR/CAD will remain bearish below 200-Day Moving Average (1.4864) and it will only enter bullish territory on a break and close above it.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets