EUR/AUD Technicals – Draghi spark potential bearish breakout

EUR traded near 2-week low after ECB’s Draghi expressed concerns over the impact of the strengthening EUR. A change of tone was also spotted as Draghi said that there were more negative risks than positive, which is a change from the usual upbeat and bullish tone. Market players believed that a shift in tone increases the odds of ECB cutting rates eventually, or find other means to push EUR lower using accomodative monetary stance, and started shorting EUR. Draghi noted that the ECB will publish new economic projection in March, from which we will be able to identify what is the “target rate” for EUR/USD. Previous quarter’s economic projection placed 2013 average rate at 1.23 versus the Dollar, more than 10 cents lower than current price.

Hourly Chart

With EUR weakening across the board, with EUR/AUD suffering an equal fate as EUR/USD despite a weakening AUD/USD which fell below 1.04 itself. Price broke the support just below 1.31, and entered below 1.305 within the same candle, at the same time establishing it as the new ceiling. Though we managed to push below 1.30 for a short while, AUD/USD weakness prevented a true bearish EUR/AUD scenario to take root and resulted in current price stuck within the 50 pip band.

Daily Chart

Daily Chart showed that bullish momentum has not yet been broken. However, Stochastic is hinting of a top forming which would satisfy a scenario which price break below 1.30 and also the rising trendline at the same time – showing a bearish breakout. 1.28 support can be seen, but a stronger support would be the slower rising trendline. A break below which would open up 1.24 and ultimately 1.22 as lower targets as the bearish reversal is confirmed. Support from the 1.28 levels does not necessary negate current uptrend from Nov 15th as price would still be within the rising wedge, though it will suggest that gains at a slower bullish momentum must be considered moving forward.

It will be interesting to see who would win in the dovish Central Bank competition. RBA still has room to slash while ECB’s reference rate is currently at 0.75% with deposit rate at zero. Much of EUR strength/weakness has been attributed to the underlying economic strength rather than purely interest rates measures – e.g. any further monetary easing policies may have a pro EUR effect as it will lift up the greater Euro-Zone. Further easing policies may also be impossible considering that the Big Bazooka OMT has not been used to buy even 1 bond. Based on this information, it seems that RBA may have the upper hand now, meaning EUR/AUD may find bearish follow-through harder to accomplish.

More Links:
Can Draghi Bust The EUR Out Of Its Range?
AUD / USD – Falls to Lowest Level in Four Months Below 1.03
EUR / USD – Falls Heavily but Caught at 1.34

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