Breakout alert! EUR/AUD is finally busting out of that descending triangle formation visible on its daily time frame. Is it in for a longer-term drop?
EUR/AUD Trade Idea
After holding as a floor for over a year, support at the 1.4400 major psychological mark seems to be giving way as Aussie bulls have been charging recently. This could put the pair on track towards testing the next long-term support around 1.3750 or even push it down by a couple thousand pips, which is the same height as this descending triangle pattern.
Euro bears are at it again after ECB Governor Draghi reiterated that policymakers haven’t really discussed the idea of tapering asset purchases yet, keeping dovish expectations in play for the upcoming rate decision. On the flip side, the RBA has maintained a neutral tone, citing potential improvements in commodity prices and growth while warning that a stronger Aussie could dampen demand.
Other event risks for this trade include the Chinese data dump later on this week, as the world’s second largest economy is set to print its GDP, retail sales, industrial production, and fixed asset investment figures. Stronger than expected results could add fuel to the Aussie’s climb while weak data could force it to pull back to the broken support zone.
I’ve decided to enter a tiny position at market (1.4325) to catch the break lower in case price doesn’t look back from its dive. I’ve got a wide stop past the 1.4700 handle to give me room to add another position on a pullback to the 1.4400 area. I’ve got my one eye locked on the next support at the 1.3700 area as my profit target for a potential 1.5-to-1 R:R on my initial position.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.