EUR/AUD has been in a steep slide mode since September 30th, but the technical reversal was confirmed after the dip below 1.5910, which played the role of the neckline of a “Head and Shoulders” reversal pattern. Yesterday, the pair hit support slightly above 1.5422 and rebounded somewhat, but with no signs that the bulls could take full charge soon, we will stay negative.
We believe that a test at 1.5422, a support zone marked by the lows of April 15th and May 10th, maybe loom soon, after which we see decent chances for the bears to take a break and allow a corrective rebound. However, if the recovery stays limited below the 1.5660 zones, we would expect another round of selling, which could lead to lower levels. A break below 1.5422 could open the path towards the low of February 25th, at 1.5250.
Shifting attention to our short-term oscillators, we see that the RSI lies below 30, while the MACD runs below both its zero and trigger lines. Both indicators detect downside speed and support the notion for further declines. However, the RSI, even within its below-30 zone, ticked up, adding credence to our view that the rate could correct higher at some point soon, perhaps after it tests the 1.5422 barriers.
In order to abandon the bearish case, we would like to see the rat returning back above the aforementioned neckline at 1.5910. The bulls may then get encouraged to push the action towards the right shoulder of the H&S pattern, at 1.6230, the break of which could allow them to put the head under their radar, at around 1.6433.
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