From a technical perspective, the lower lows and lower highs have formed a bearish trend, but the rate of decline has been steeper for the highs than the lows, creating a massive falling wedge pattern on the daily chart. This price action shows declining selling pressure on each additional thrust lower, and paradoxically points to a substantial rally if rates manage to break above the upper trend line. Likewise, the RSI has been putting in consistently lower highs over the course of this month, but if the indicator manages to break out soon, it could serve as a leading or confirming indicator for price itself.
Of course, the proverbial elephant in the room is tomorrow’s ECB meeting. Though no action is expected, it will be hard for the central bank to be anything but dovish, so a euro-negative result is a definitive possibility. That said, if ECB President Draghi is more balanced than the market is anticipating, we could see a relief rally in the euro and a possible catalyst for a bullish breakout in EURAUD.
If we do see EURAUD rally through this week’s high, a move up to at least the 23.6% Fibonacci retracement of this year’s drop around 1.4700 will be favored. Meanwhile, a conclusive break below 1.4400 support would prolong any shift to a bullish outlook and could take the pair down to the bottom of the wedge in the mid-1.4200s.