A possible bull flag on EUR/AUD is forming
Updated
EUR/AUD has caught my eye for a potential long. It posted a solid rally form the August low and entered a retracement phase, so at some point looking for it to turn higher. A potential bull flag is forming on the daily chart, and Friday’s spike lower shows a (failed) attempt to drive the market lower, where is found support at the July (close) high. Yesterday’s low found support at the July high and monthly pivot point, and prices are teasing trend resistance of the potential bull flag.
Furthermore, a bullish divergence is also forming on the RSI (2) so perhaps we are approaching a bullish breakout.
Also note that large speculators remain net-short AUD/USD futures yet are their most bullish on EUR/USD futures since June 2021. We could look at this as a proxy for large speculators being net-long the euro against the Australian dollar.
Furthermore, a bullish divergence is also forming on the RSI (2) so perhaps we are approaching a bullish breakout.
Also note that large speculators remain net-short AUD/USD futures yet are their most bullish on EUR/USD futures since June 2021. We could look at this as a proxy for large speculators being net-long the euro against the Australian dollar.
- Bulls could either wait for a break above 1.5352 with an initial target being the 1.5706 to monthly R1 zone.
- Alternatively, bulls could seek dips above the monthly pivot point in anticipation of a breakout (whilst this increases the potential reward to risk, it also brings the risk the breakout does not occur).
- A break above the R1 resistance zone brings the R2 resistance zone into focus.
- A break beneath Friday's low invalidates the bullish bias over the near-term and signals a deeper retracement from its recent highs.
Trade closed manually
The breakout started well, but the bearish engulfing candle on Thursday was a firm warning that all was not well. Whilst prices have since found support at the lower bounds of the support zone (and a small bullish engulfing candle has formed), we'd prefer to see more evidence of a swing low before reconsidering longs.
And given the eye-watering 11.1% y/y inflation rate for the UK (and more hawkish BOE relative to the ECB), perhaps GBP/AUD would be the better bet over EUR/AUD.
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