EUR/AUD's downward trend may have resumed

The EUR/AUD has turned lower on the day after the bulls were unable to hold their ground above the key 1.4575/85 resistance area. If the currency pair closes the session around the current levels, it would therefore crate a shooting-star-like candle on the daily chart. In my view, this would be very bearish from a technical point of view. That said, Tuesday’s data releases from Australia (NAB Business Confidence Index) and the Eurozone (German ZEW Economic Sentient) poses a risk to this outlook. Indeed, a closing break above the aforementioned resistance zone would invalidate my bearish outlook.

But the lack of demand above the 1.4575/85 area suggests the EUR/AUD may have already resumed its downward trend. Several technical factors converge around this area, not least the 38.2% Fibonacci retracement level of the last downswing. This is a shallow retracement, meaning that the market may still be positioned net short. So, if the rally were to stall here one should expect the next leg lower to be quite significant. In addition, 1.4575/85 has offered strong support and resistance in the past. The false break above here today confirms that traders clearly respect this level. Meanwhile the RSI has created a negative divergence, confirming that the bullish momentum may have weakened or ended. A negative divergence occurs when the RSI make a lower low while the underlying price makes a higher high.

As a result of today’s bearish-looking price action, I now expect the EUR/AUD to at least test the 1.4345 support level, if not break below it. Additional support levels to watch are at 1.4300 (50-day SMA), 1.4050 and 1.3800. But as mentioned, a potential daily close above 1.4575/85 would be a bullish development. In that case, the EUR/AUD could retrace 50 or even 61.8 percent before making its next move.