EURAUD has formed higher lows and higher highs, moving inside an ascending channel pattern visible on its 4-hour chart. Applying the Fib tool on the latest swing high and low shows that the 61.8% retracement level lines up with the channel support just above the 1.4000 major psychological level.
This is also close to the 100 SMA dynamic support, which is safely above the 200 SMA and indicating that the path of least resistance is to the upside. The gap between the moving averages is widening to reflect stronger bullish momentum. The 200 SMA is slightly below the channel support but could serve as the line in the sand for a larger correction.
Stochastic is pointing down from the overbought area to indicate that sellers are about to take control of price action, opening the opportunity for a countertrend trade to short at this channel resistance. If selling pressure is strong enough, price could even break below the channel support and spur a reversal.
Economic data from the euro zone turned out better than expected once more, with the German Ifo business climate index rising from 111.1 to 112.3, outpacing the consensus at 111.2 to signal a much stronger pickup in optimism. This follows stronger than expected manufacturing and services PMI releases from Germany and France last Friday, underscoring the ECB’s shift to a less dovish stance.
As for the Aussie, there have been no major events so far, save for a speech by RBA Assistant Governor Debelle. The currency seems to be taking its cue from risk appetite and traders look wary of higher-yielding assets these days. The next big event for the Aussie might be the Chinese CPI releases on Friday.