Has EUR/AUD resumed downward trend?

The euro has been dealt another blow today after the release of some mixed bag Eurozone data. Though the numbers overall were not particularly bad – in fact there was some welcoming news from German retailers, for example – the market seems to have focused mainly on the slightly weaker-than-expected core CPI print, which probably raised expectations that the ECB may increase its stimulus programmes further to fight deflation threats. The EUR/USD dropped to its lowest level since September 2012 while the euro crosses, such as our featured EUR/AUD pair, all came under increased pressure.

Although the headline September CPI was in line with the expectations, climbing 0.3% month-over-month, core CPI rose ‘only’ 0.7% versus 0.9% expected. The unemployment rate remained stable at 11.5% in the Eurozone and 6.7% in Germany, but fell slightly in Italy to 12.3% from 12.6%. However youth unemployment in Italy rose to a record 44.2% while the German jobless claims unexpectedly rose by 12 thousand applications. Nevertheless retail sales in Germany climbed by a good 2.5% month-over-month which was much better than 0.6% expected, while consumer spending in France increased by 0.7%, again better than expected.

The EUR/AUD has admittedly not been the best pair to trade the euro weakness, with the AUD tumbling even more sharply than the EUR in recent times. As a result, the EUR/AUD has been climbing higher, rising by a good 785 pips from its low in early September. However, the downward trend may have resumed today – not only because of the abovementioned fundamental news but due to some technical reasons, too.

That’s because price action around the key 1.4575/85 area has been unambiguously bearish thus far today with the daily chart displaying a large bearish engulfing candlestick pattern. As well as previous support and resistance, this 1.74575/85 area marks the 38.2% Fibonacci retracement level of the last major downswing. Therefore with price holding below here, it suggests the market may still be positioned short on this FX pair, for 38.2% is a relatively shallow retracement. Until/unless the EUR/AUD breaks above here, the path of least resistance is now back to the downside. So, some of the potential support levels to watch are displayed on the chart: the first being the convergence of the 100-day SMA with previous resistance at 1.4415, which is being tested as of writing, followed by 1.4285 – a level which ties in with the 50-day SMA and the 38.2% Fibonacci level of the upswing from the September low.