Ross Woodfield
Blackwell Global Investments Limited
It’s been an interesting start to the month for both the Euro and the Aussie with volatility being the only real winner. The Euro has clawed back plenty of lost ground and it now looks primed to give it all back.
The depreciation of the Aussie dollar has been sharp and punishing, thanks to disappointing Chinese data that overshadowed the excellent (too good to be true) Australian employment figures. The Euro on the other hand has found support, halting the slide against the US dollar, after the ECB released another round of stimulus earlier this month.
The EURAUD pair is a volatile one and that volatility has only increased this month. The pair now finds itself pushing the upper band of the channel, and so far the bearish trend line appears to be holding. In a case of bearish divergence, the Stochastic Oscillator is showing a higher high that the previous time it was in oversold territory, however the price has posted a lower high. This could point to a rejection off the upper trend line and a strong bearish movement.
The Aussie dollar will have a quiet end to the week with no more economic news expected out, so all movements will come from the Euro side. The ZEW economic expectations for Germany and the EU are due out later today and they are expected to dip. Anything to the upside could see the channel seriously tested. Also keep an eye on EU CPI data due on Wednesday as this could make things interesting for the Euro.
If we see a bearish movement, look for support as possible exit points at 1.4204, 1.4035 and 1.3801 as these have all acted as support before. If the EU data is very strong and the price breaks out, it will find resistance at 1.4416, 1.4477 and 1.4546, however, this is the least likely of the two options.
The EURAUD cross is a volatile pair that looks likely to reject off the upper level of the channel. The Stoch points to bearish divergence and the economic news for the EU could help this along.
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