The euro is down again against most major currency pairs as investors continue to fret about the developing geopolitical situation in Greece. Surprisingly, the euro has held up relatively well against the Australian dollar, with the EUR/AUD recently peeking to new 2012 highs above 1.2900. Despite the recent buying pressure, the pair has failed to hold above the 1.2900 level, and as of writing, today’s candle has created a Dark Cloud Cover* formation, suggesting the pair may be due for a reversal back lower this week.
Meanwhile, the 4hr chart also shows signs of declining momentum in the unit. The pair has reversed sharply lower after filling its weekend gap overnight, and the 1.2900 level continues to provide a stiff ceiling on rates. The successively marginal highs above 1.2900 suggest that the recent moves higher are not confirmed by bullish momentum (MACD divergence). If the unit drops below Friday’s low, a fall down to retest the central Monthly Pivot at 1.2726 becomes much more likely.
To take advantage of a bearish reversal, traders could set a stop sell order at 1.2838 (under Friday’s low) with a stop at 1.2925 (above the 2012 highs and strong resistance near 1.2900) and a target at 1.2738 (just ahead of monthly pivot support at 1.2726). This trade would be invalidated by a rally above 1.2925 prior to entry, or if not triggered in 48 hours.
Potential Strategy: Sell if EUR/AUD breaks below 1.2838, stop at 1.2925, target at 1.2738.
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* A Dark Cloud Cover is formed when one candle opens near the top of the previous candle’s range, but sellers step in and push rates down to close in the lower half of the previous candle’s range. It suggests a potential trend reversal.
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