EURAUD since August 2012 is moving calmly north creating a bullish channel. The whole movement is much calmer than previous declines lasting from February 2009, which reminds rather a temporary correction.
As a result of the recent downward movement we have reached an important support zone, which coincides with lower channel limitation, where demand response was seen already in March. Since then, we have seen growth.
Looking at weekly chart, we can see that market has reached very precisely level in the vicinity of mentioned zone, where in mid-February there was a demand response. Market is moving within a growth channel and also worth noting is a consolidation that has been ongoing since June 2013.
As a result of the downward correction after recent bullish movement market has now reached and re-tests local support zone, which coincides with a 38.2% Fibonacci correction. Rejection of this level could pave the way to further growth.
On daily chart, we notice that although the support at 38.2% Fibo level has been overcome and the falls have reached 50%, the demand response has quickly occurred, and negated this beakout.
Growth is still calm and it seems that at least one more bearish impulse is awaiting us. If this happens, the nearest support is around 1.4280.
It is worth noting that current situation on H4 interval is getting interesting and it turns out that previously mentioned level converging with the 38.2% Fibonacci measurement may be neck line of a inverted head and shoulders formation.
Market behaves very technically and re-tests most of the defeated levels of support and resistance (marked in pink zones).
It seems therefore that at present we can consider two scenarios:
- Neck line break = iH&S formation and continuation of growth
- Break out of the current consolidation and declines.
No matter which of the above scenarios will be realized, personally I will wait for the re-test of defeated support or resistance and only then I will look for opportunities to open a trade. As far as potential ranges are concerned, they are almost identical in both cases and are about 300 pips.
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