With a constant barrage of Euro-negative news (including this morning’s generally weak PMI reports) over the past few weeks, it’s surprising the Euro has trended higher against any currencies. As quick look at the EUR/AUD daily chart will reveal though, the Euro has strengthened consistently against the Aussie over that time period.
Since bottoming in early March, the EUR/AUD has formed a clear bullish trend line which has put a floor under five separate pullbacks in the pair, including earlier today. From a candlestick perspective, today’s intraday bounce appears to be forming a Bullish Pin Candle* on the daily chart; this candlestick pattern indicates strong support in the mid-1.2800s and suggests that future pullbacks may be limited to this area moving forward.
Zooming in to the 4hr chart, a specific trade entry becomes clear. If rates can break above today’s high at 1.2915, the pair is likely to continue to rally toward the 2012 high just above 1.3000. Not surprisingly, the unit topped out last week within a few pips of the Monthly R2 pivot, a leading area of support that we were able to anticipate over 3 weeks ago. This strong resistance area may again limit bounces in the pair, making it a logical area to target on a buy trade.
Given the clear daily uptrend and near-term resistance at today’s highs, traders could set a stop buy order at 1.2920 (above today’s high) with a stop at 1.2824 (under today’s low and longer-term bullish trend line support) and a target at 1.3015 (just ahead of the key previous / pivot resistance level highlighted above). This trade would be invalidated if not triggered in the next 24 hours, or by a drop below 1.2824 prior to entry.
Potential Strategy: Buy if EUR/AUD breaks above 1.2920, stop at 1.2824, target at 1.3015.
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* A Bullish Pin (Pinnochio) candle, also known as a hammer or paper umbrella, is formed when prices fall within the candle before buyers step in and push prices back up to close near the open. It suggests the potential for a bullish continuation if the high of the candle is broken.
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