Before I discuss my current open positions, I would like to take a look at EURAUD. Using the daily chart, it has been confirmed by the price action in the past week that a double bottom has formed and this pair is in the process of making a big retracement to the upside. In my chart analysis, I have considered two downside moves in determining my entry levels and target prices. The first move that I will use to confirm the double bottom is the downside move from the 11/23/11 high of 1.3803 to this pairs all time low of 1.2127 on 2/7/12. Friday, 2/24/12 daily close of 1.2574 was above the 23.6% fib level of this most recent downside move. On 2/10, the pair bounced off of the 14/6% fib level only to retest the lows on 2/16 but failing to go lower than 1.2144. Since then, we have seen 6 consecutive days of positive gains for the Euro.
The following is a chart that shows this price action:
Now lets take a look at a much larger move to the downside, which began from the 5/20/10 high of 1.5454. The following chart shows that move.
Since the neckline has been broken and the daily close was above the 23.6% fib level of the 11/23/11 downside move, we can set our for target price (TP) at the 38.6% fib level of 1.2768. Now lets take into consideration the bigger downside move from 5/20/10. When we reach or TP1, price action will take us well above the 14.6% fib level of 1.2614. A daily close above 1.2768 should confirm a follow through to the 23.6% fib level of the 5/20/10 high, roughly in the area of 1.2912. Here is where I expect price action to become very interesting. Looking closely at the charts, this 23.6% fib level is just shy of the 50.0% fib level of the 11/23/11 downside move (1.2966). I will make this my TP2. If the pair makes a daily close above this price, next target that comes into play will be the 61.8% fib level of the 11/23 move (1.3163). This I will set as TP3. At this level, we must pay very close attention to the price action. Many of you know that the 61.8% fib level can be known as a reversal level in fibonacci retracements. My best guess would be that we can see price action consolidate at this level before the market decides the next move.
In the short to medium term, I anticipate price action may go even higher. I believe we will see the rate move as high as 1.3800. Here is the reason why. First, let me add the weekly chart.
The week ending 10/10/08, price rate saw a high of 2.1130. Connecting that high, to the all time low, we see that from a weekly perspective, this pair is in dire need of a major correction. A retracement back to the 14.6% level on the weekly chart puts us at 1.3449. Going back to our daily chart, this price level will put us above the 76.4% fib level of the 11/23 downside move while simultaneously placing us above the 38.2% fib level of the downside move from 5/20/10. A close above these levels will hint to a move higher around 1.3800 which coincides with a 100% retracement of the 11/23 move and 50.0% fib level of the bigger move of 5/20/10. With that being said, my TP4 will be 1.3449 and TP5 will be around the 1.3800 area.
Before going any further, I would like to reiterate that this is a short to medium term price move. Do not expect to achieve all of these level in a day or so. This is price action I expect will happen over the course of the next several weeks to several months.
From a fundamental perspective, this trade is supported for several reasons. First, we have seen strong moves in the Euro, especially in this past week. This has been a result of the Greece deal being approved as well as the enormous amount of shorts being reported by the CFTC. This has led to a short squeeze and stops being flushed out. Until more shorts are removed from the market, it will be very difficult for EUR to see any significant downside moves. Secondly, there are an enormous amount of AUD longs in the market, and the Aussie is significantly overbought across the board. Consider this, while there was a strong rally in both EUR and GBP, AUD failed to keep pace. AUDUSD has been capped under 1.080 and has been unable to follow through on any upside move beyond this level. With the market over saturated with Aussie longs, until some of those longs are removed, AUD could face some serious headwinds. Additionally, we will see the ECB institute its 2nd leg of LTROs. Anticipating the same results as the 1st LTRO, we should see another leg up in the EURUSD cross. If Aussie continues to struggle, we could very well see a strong upside move in EURAUD with most traders anticipating that EURUSD will reach 1.3600.
With that being said, here is my EURAUD trade for the week:
Buy @ 1.2574 (current price)
S/L @ 1.2373 (14.6% fib level)
TP1 = 1.2768
TP2 = 1.2966
TP3 = 1.3163
TP4 = 1.3449
TP5 = 1.3813
I would like to add one more chart for comparison. This is a weekly chart with Bollinger Bands and SMAs (50 and 100).
Key levels to watch (as of 2/24/12 week close):
1.2873 - the bollinger band moving average. This also falls in the area of the 50.0% fib level of the 11/23/11 down move and the 23.6% fib level of the 5/20/10 down move.
1.3198 - 50-SMA. Falls just above the 61.8% fib level of the 11/23/11 down move.
1.3839 - 100-SMA. This is the area, should price go this far, where I anticipate the rate will face the most headwinds. 1.3786 is the 50.0% fib level of the 5/20/10 down move. 1.3803 is the 100% fib level of the down move from 11/23/11. 1.3825 is the bollinger band top. If we average these 4 price levels, we come up with a price rate of 1.3813, which is my TP5.
Remember, please trade at your own risk. As we all know, fundamentals can change at any given time which will ultimately affect trader sentiment. From a technical stand point, this is a strongly probable scenario. But with the issues in the Eurozone as well as other areas of concern, the tide can turn quickly so please trade carefully and use good money management. I welcome any and all feedback.
