The EURAUD has been printing an ascending channel that started back in late March and is best seen on the 4-hour timeframe. Let’s get into the charts:
What makes the channel interesting is the impressive pin-bar that printed yesterday – selling pressure above 1.4175 showed substantial offers in this area, driving prices right back down and closing near the lower trendline of the channel. This suggests that a downside breakout is imminent.
Of course, the lower trendline that forms the underside of the channel still stands as resistance, and will need to be breached before any shorts could be considered.
Trade idea: Watch for a selling opportunity on a close below the lower channel trendline. First target would be as price reaches the longer-term trendline formed by the lows in mid- to late- March. Secondary target at 1.3900 where we can expect buyers to come in.
If price starts closing above 1.4175 on the 4-hour timeframe, the implication would be that the channel formation is not complete and this setup would be invalidated.
Switching to a higher timeframe shows that we might have some confluence for our short. Here is the daily chart:
There are a few important elements to note:
1. Price has been capped by a descending trendline that extends from February of 2016.
2. The 1.42 level has provided immense support in the past. We should expect buyers and sellers at this level.
3. Price might be forming the right shoulder of a head and shoulders formation. Note: Might.
All three of these points suggest ‘downside’.
Will you be trading the EURAUD with me? Let me know if you’d like my trade levels and I’ll send them to you, should the trade setup the way I like it.