Downside pressure has increased following yesterday’s ECB announcement which was the last one under Draghi who will leave the central bank, more divided than it has ever been, to deal with an under-performing economy and lackluster inflation following a failed mandate on price stability. The EUR/AUD was rejected by a strong short-term resistance zone which led to a breakdown below its 61.8 Fibonacci Retracement Fan Support Level, turning it into resistance; this has cleared the path to the downside and back into its support zone.
The Force Index, a next generation technical indicator, confirms the rise in bearish momentum following the breakdown. The initial move by the EUR/AUD below its 61.8 Fibonacci Retracement Fan Support Level was reversed, but after the Force Index briefly eclipsed its horizontal resistance level it descended and has now pushed below its ascending support level as marked by the green rectangle. This represents another major bearish development and this technical indicator is now expected to move into negative territory, place bears in control of price action and lead this currency pair further to the downside. You can learn more about the Force Index here.
Price action has already moved below the intra-day high of 1.62699 which marks the first challenge of the converted 61.8 Fibonacci Retracement Fan Resistance Level from where the EUR/AUD spiked back into its short-term resistance zone. The rise in bearish pressures started to attract fresh net sell positions in this currency pair as the short-term resistance zone, located between 1.62888 and 1.63229 which is marked by the red rectangle, has proven its strength and validity once again; the 61.8 Fibonacci Retracement Fan Resistance Level has just moved into this zone.
Only one minor support level, located around the intra-day low of 1.62060 which represents the low of the previous breakdown below its 61.8 Fibonacci Retracement Fan Support Level which turned it into resistance, is in the path of price action. This is expected to lead the EUR/AUD into its next support zone which awaits this currency pair between 1.60762 and 1.61298 as marked by the grey rectangle. The starting point of the Fibonacci Retracement Fan sequence is located inside this zone and a further breakdown would depend on a fundamental catalyst. You can learn more about a breakdown here.
EUR/AUD Technical Trading Set-Up - Breakdown Extension Scenario
Short Entry @ 1.62650
Take Profit @ 1.60800
Stop Loss @ 1.63100
Downside Potential: 185 pips
Upside Risk: 45 pips
Risk/Reward Ratio: 4.11
Should the Force Index mount a reversal, push above its ascending support level and complete a breakout above its horizontal resistance level, price action could attempt a breakout above its short-term resistance zone. This may lead the EUR/AUD into its next long-term resistance zone, located between 1.63748 and 1.64319, which should be considered an excellent short selling opportunity as the fundamental picture favors more long-term downside.
EUR/AUD Technical Trading Set-Up - Limited Breakout Scenario
Long Entry @ 1.63350
Take Profit @ 1.64050
Stop Loss @ 1.63050
Upside Potential: 70 pips
Downside Risk: 30 pips
Risk/Reward Ratio: 2.33
