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Short EURAUD on a Retracement

Short EURAUD on a Retracement

2017-03-29 00:03:00
Paul Robinson, Currency Strategist
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With the help of a ‘risk-off’ environment EURAUD traded up to the trend-line extending down from February 2016, and thanks to a hard bounce in risk the cross was rejected strongly from resistance. With today’s strong showing in stocks and possible end to the correction (DAX & CAC readying for breakouts, FTSE 100 holding key trend-line support, and the S&P 500 reversing up after yesterday’s gap-n-trap), we are seeing risk-related crosses react strongly.

Euro-Aussie’s full reversal (and then some) of yesterday’s up-day at trend-line resistance (which is also in confluence with the upper parallel of the trend-line off the Feb low) provides the kind of change in direction at a point on the chart which could warrant a big reversal of the month-long rally. Looking more granular – 4-hr time-frame – EURAUD put in a lower-low from yesterday after double-topping.

EURAUD: Daily

Short EURAUD on a Retracement

Created with TradingView

EURAUD: 4-hr

Short EURAUD on a Retracement

Created with TradingView

Given how sharp the initial down-move was off the highs, the preferred way to enter is on a countertrend rally for improved pricing, and with it – better risk/reward. Near the previously broken swing-high from earlier this month of 14184 and the swing-low on 3/27 of 14218 offer attractive spots to enter. A roll-over following a bounce will carve out a lower high on the 4-hr and provide a reference point from which to move the initial stop closer to the entry price should EURAUD start rolling downhill.

The first target is the trend-line off the Feb low, followed by the 3/21 low of 13874 (limit set slightly above). Targets in proximity to the entry and stop offer potential risk/reward ratios of upwards to ~1:3 depending on the entry.

Entry – Just below 14184 & 14218

Stop – 14325 (15 pips above daily swing high)

Target 1 – Feb trend-line, ~13975, but it’s a moving target given the angle of the trend-line

Target 2 – Above 3/21 swing-low @13900

---Written by Paul Robinson, Market Analyst

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