The Australian currency rallied against all of its major trading partners after the annual inflation rate surged to 2.9%, a level that has not been tested since three months ended March 2010. This is a very important statistic because it now will damper expectations that the RBA will cut rates at its next meeting. The Aussie for most of the year has performed very well against the euro and this could be the beginning of the next major leg down for EUR/AUD.
The weekly chart for EUR/AUD shows since forming an ABCD pattern at 1.5830, a major reversal has occurred that appears set on testing the 50.0% Fibonacci retracement of the pattern. Currently key support was taken out last night from the June low and if bearish momentum accelerates, we could see 1.4100 targeted. If the 1.4047 zone is breached, then we could see another drop towards 1.3600. Key resistance will come from the 1.4400 area.
The trade: Sell EURAUD at 1.4260 with a stop loss at 1.4360 and a take profit at 1.4100. The Risk/Reward Ratio is under 1:2
Edward J. Moya
WorldWideMarkets Online Trading