EURAUD Ignites Reversal after Bearish Pressure

Amidst the recent dip in the Euro’s momentum following a milder-than-anticipated inflation report last week, the EURAUD currency pairing experienced a pronounced downward trajectory leading up to the Reserve Bank of Australia’s (RBA) interest rate announcement on Tuesday. In line with market expectations, the RBA’s decision maintained interest rates at 4.35%, marking a 12-year high.  

The Australian dollar declined after the announcement of unchanged rates, as the RBA left the question of potential future tightening unanswered. Emphasizing a data-driven approach, the RBA acknowledged substantial uncertainty in both upside and downside outlooks. Consequently, market confidence in an imminent rate hike dwindled, resulting in a contraction of the Australian dollar and providing relief for the beleaguered EURAUD currency pair. 


On the 4H chart, a descending channel has emerged. After the Eurozone inflation report last week, the channel looked destined for a breakdown, with the bears enforcing a shift of the price action below the dynamic resistance. However, support at 1.6267 underpinned a swift retracement, fuelled by the weakening of the Australian dollar, which now puts the channel resistance at risk of a breakout in the opposite direction. 

The currency pair moved above the 25-SMA (green line) and is fast approaching the channel resistance. For a sustainable breakout, the pair may have to clear the 50-SMA (blue line) at 1.6520. If this level gets breached, the longer-term retracement could continue toward the Fibonacci midpoint and 61.8% Fibonacci golden ratio of 1.6559 and 1.6628 as we advance. 

Alternatively, failure to clear the 50-SMA could see the prior downtrend continue. Support is established at 1.6456 and 1.6367 within the channel should the pattern continue. If the bears engage in another high-volume selloff, the neckline support at 1.6267 could be tested again to prevent a longer-term downtrend in the upcoming weeks.  


As the RBA kept its interest rates unchanged while delivering commentary that tilted toward the dovish side, the EURAUD currency pair received a much-needed recovery in the Tuesday session. For the bullish rally to continue, the buyers may have to clear the 50-SMA at 1.6520 to trigger a sustainable trend reversal.  

Sources: Koyfin, Tradingview, Reuters 

Piece written by Tiaan van Aswegen, Trive Financial Market Analyst 

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