EURAUD Analysis October 2014 (D,M,Y)
Created on Wednesday, 01 October 2014 09:22
Written by Austin Galt
There looks to be a good short opportunity about to present itself in the EURAUD. Let’s investigate taking a top down approach beginning with the yearly chart.
EURAUD YEARLY CHART
We can see price topped out in 2008 at 2.1147 and got smacked down into a low in 2012 at 1.1609. This was a new low so now we just need a lower high to confirm a downtrend in force. On the contrary, price could eventually go up and take out the 2008 high meaning an uptrend is in force. But let’s hold our horses and take it one step at a time.
Let’s assume it is a downtrend and we’re looking for a lower high. The first rally in a bear market often makes a deep retracement. I have added Fibonacci retracement levels of the whole move down and price has so far rallied to just above the 38.2% level. This seems too short although turning down here would mean there is a strong downtrend in play. Personally, if it is a long term downtrend, I favour a deeper retracement back up to the 76.4% level which stands at 1.8896.
The Bollinger Bands show price moving away from the lower band and getting up close to the middle band. In a downtrend, price often rallies back to the middle band or upper band before commencing a powerful move down. Is this the start of a powerful move down to new yearly lows? I have my doubts.
I have drawn voodoo style what I think the 2014 candle will look like come the end of the year and is labelled Voodoo 2014 candle. This calls for the 2013 candle to be consolidated. These types of consolidations often retrace to where the candle opened which, in this case, is where the year opened. The open price for 2013 was 1.2710. I am looking for price to now get back to at least that level. From the recent high around 1.46 that means there is the potential for a massive 2000 pip move in relatively quick time.
The following year, 2015, will give more clues as to the future price path. Trading below the 2014 low will raise question marks and certainly trading below the 2013 low of 1.2219 will most likely confirm a massive downtrend in play.
The Stochastic indicator is trending up so a bullish bias has to be given there. It is still in weak territory so there is plenty of upside potential.
So, is this move higher off the all time lows a bear market rally or the beginnings of a bull trend? Personally, I currently believe the move to new lows below the 1997 low to be a massive fake out. A false break low of epic proportions. Why? I like the 2012 candle formation for low much more than the 2008 candle formation for top. The 2012 low shows a marginally positive doji formation which is very common at lows. Regardless, there will be plenty of time to investigate this further in the future.
EURAUD MONTHLY CHART
The Relative Strength Indicator (RSI) recently bounced off the oversold area. If a substantial move down is underway there then is still plenty of room to go lower.
The Stochastic indicator is still trending down having arrived at oversold territory and it may meander along at this level if price trends back down.
The Moving Average Convergence Divergence (MACD) indicator has a bearish bias with the red line above the blue line and no real threat of a bullish crossover.
The Bollinger Bands show price moving away from the upper band and sliding straight on through the middle band and hitting the lower band. Price is now at a critical juncture. Does it bounce right off this lower band or does it continue the downtrend and cling to the lower band? I favour the latter.
The Parabolic Stop and Reverse (PSAR) indicator has a bearish bias with the dots currently above price. The dots should be just below 1.47 for the month of October. I suspect price can go up and test those dots at the beginning of the month before turning back down. Let’s see.
I haven't drawn a voodoo style candle for the month of October but I suspect we could get a big negative outside reversal candle. Time will tell.
I have added Fibonacci retracement levels of the move up from the 2013 low to recent high. If price were to consolidate the 2013 candle as laid out in the yearly analysis then we could expect the pullback low to be somewhere south of the 76.4% level.
I have drawn a green highlighted circle which shows the area where price went parabolic. Price exploded higher out of this zone. When correcting, price often returns to this level. This level is right around the 88.6% Fibonacci retracement level. This is also around the open price level for 2013. Hmmm.
Let’s now skip to the daily chart to look in tight.
EURAUD DAILY CHART
I have drawn a horizontal line which denotes the support level derived from the previous swing low. Price breached this level before reversing higher. So there exists the potential that this is a false break of support which augurs for higher prices. While this is certainly a possibility, it is one I don’t favour considering the analysis already undertaken. We’ll know soon enough.
I have added Fibonacci retracement levels of the recent move down. Price has now rallied back to the 38.2% level. Turning back down here would keep the downtrend in a strong position.
The Bollinger Bands show price recently starting to creep away from the upper band. Price looks like it may say one last goodbye to this upper band.
It is possible that a “three strikes and you’re out” top is forming. This consists of three marginally higher highs that should also set up a triple bearish divergence on the RSI. It looks as if we already have the first two tops in place.
The MACD indicator, while retaining a bullish bias, looks to be threatening a bearish crossover.
Let’s now quickly look at the charts of the EURUSD and AUDUSD to see if they can give us any clues about the future direction of the EURAUD. We’ll use the monthly charts of each for this exercise.
EURUSD MONTHLY CHART
The EURUSD is in a major downtrend with the next likely support level the uptrend line which connects the June 2010 low with the July 2012 low. This is just above the 1.22 level. Below that is the horizontal line which stems from the July 2012 low at 1.2044. So, there is still quite a way to fall to the next support level from the current price of just above 1.26.
The Stochastic and MACD indicators are both trending down and looking very bearish. No love there.
AUDUSD MONTHLY CHART
The Stochastic and MACD indicators are showing recent bearish crossovers which could mean a big move down is set to occur or it could be just the toing and froing that occurs as both indicators seem to be trending up overall.
Also, the AUDUSD is now down to just above support which stems from the January 2014 low of 86.60. There is the potential for price to find support here and make a double bottom. Breaking to new lows now would be very bearish but I doubt this scenario.
I have added Fibonacci retracement levels of the move down from the October 2013 top to the January 2014 low. Personally, I think this is all part of a major corrective phase with price set to rally back up to the 88.6% level around 96.31.
So, provided the AUDUSD doesn’t break to new yearly lows, it seems to have more bullish potential over the coming months than the EURUSD. This supports my bearish view on the EURAUD.