EURAUD: Setting Up for the ECB?

Uncertainty continues to remain rife amongst most currencies with high-volatility Thursday just around the corner. However, the movement of the Australian dollar may well provide a viable setup for entering a trade with exposure to the Euro, a currency likely to be buffeted by both the ECB announcement and the British election results. In its role as the anti-dollar, it may even be impacted by the James Comey testimony.

Figure 1: EURAUD Daily – Hidden Support

The EURAUD daily chart is showing a decline past a rising level of support. Whilst likely to be invisible to the traditional trendline chartists, the Andrews’ Pitchfork tool is clearly identifying a channel that has been respected. Prices may decline into the lower half of the channel, but with the increased uncertainty in the environment, it seems quite likely that there will be a tradeable bounce due to an overshoot of support prior to this occurring, should it occur.

The ideal scenario would be for a trade to be set up and triggered prior to the slew of announcements tomorrow, whereby this trade would (hopefully) be in the correction direction for it to take off. Even if it were not, there is a good chance that traders will be able to reduce risk to breakeven prior to the announcements.

Thus, we will turn to the four-hourly chart for potential entries.

Figure 2: EURAUD Four-Hourly Chart - Overshooting Trendline and Prior Range Support

On the four-hourly chart, a prior range is immediately visible, and price has just penetrated its floor. This may well provide the springboard necessary to cause at least a retest of the recently broken Pitchfork support. Thus, analysis suggests that a logical Blue Box reversal zone would be 1.4886-1.4924.

Triggers may include the turning of the (8, 2, 2) accompanied by a breakout of the setup candle. Of course, traders might choose to use other entry techniques, but with a trade such as this, it would be best to maintain relatively sensitive entry triggers.

As with all Blue Boxes, we are willing to try twice, so that even if the trade is stopped out, we will re-enter once more should another entry occur before a candlestick closes below the Blue Box support at 1.4886.