Two weeks ago EUR/AUD was finding support on the 200-Day Simple Moving Average. Last week the pair broke below it, only to test the 1.4700 handle coupled with 61.8% Fibonacci Retracement based on the uptrend between October 2013 and January 2014. This week, with a little help from Australian Employment Change and Unemployment Rate, we’ll find out if this retracement will be deeper or if a decent correction is coming up next.
Melbourne Institute Survey of Consumer Inflationary Expectations reports the expected inflation rate increased by 0.3% to 2.4% in April from 2.1% per cent in March. Employment Change increased to 18.1K versus a forecast of only 7.3K; Unemployment Rate dropped to 5.8%, 0.2% lower than previous figures and 0.3% lower than the forecast.
EUR/AUD appears to have found a strong technical low at 1.4695. A second failed attempt to close below 1.4729 – the 61.8% Fibonacci Retracement level – led to the formation of a short term double bottom. For the sake of the confluence, this double bottom coincides with the 200-Day Exponential Moving Average (purple line). If anything, 1.4695 represents a crucial support level.
A break-out and a consolidation below the double bottom will inevitably lead to a continuation of the downtrend. 1.4550 represents a major pivot zone from 2013 and the first target towards the downside. 1.4170 represents a distant second support level.
This week the downtrend cannot be invalidated unless price rallies above 1.4850. This would break the lower highs configuration, and the bearish trendline from March. Further up resistance levels lie at 1.4955, 1.5025 and 1.5150.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets