The Euro has rallied early on Tuesday, as traders continue to see a range play out overall.
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EUR/AUD
The Euro has rallied quite significantly against the Australian dollar early on Tuesday as the 1.6250 level continues to offer support. All things being equal, this is a market that I think offers a lot of volatility opportunities, and this shot higher is definitely one of interest for me, because we have been in such a well-defined range that anytime I see a certain amount of volatility or movement, I start to think about where we go next.
I do recognize that over the longer term, this is a pair that has dropped significantly, and I also recognize that there are multiple resistance areas above. In fact, we are getting awfully close to one in the form of 1.6350, but even if we break above there, we have the 50-day EMA and the 1.66 level offering resistance.
Honestly, I do not want to chase the momentum here. I want to find signs of exhaustion that I can start shorting.
Carry Trade and Resistance Levels Favor Sellers
This gives me the opportunity to take advantage of the longer-term downward pressure, and the fact that we have such a well-defined area makes it very easy to pay attention to as traders continue to take advantage of the interest rate differential. There's about a 2% interest rate differential between these two currencies, so you get paid to get short.
This rally here is probably more or less in reaction to the fact that we saw a little bit of calming of tensions in the Middle East, but the carry trade is something that's been alive and well for a while now. I don't see that changing, so I like the idea of shorting at the first signs of exhaustion either somewhere near here, the 50-day EMA, or if I have to, 1.66. It's not until we break above there that I think anything truly changes.