EUR/AUD Reverses at Bearish Target. What Now?

Shorting EUR/AUD has been one of the better performers in recent weeks for bearish traders. Yet yesterday’s rally (its best in 4-months) should serve as a warning.

Charts (3)

EUR/AUD was an underperformer over the past 3 months but saw a strong bounce yesterday from its lows

Back on the 6th of October we were keeping an eye on EUR/AUD as it approached trend support, which also coincided with a zone of potential support. Such areas always warrant a close look as they can provoke a volatile reaction and relatively easy plan for bulls and bears. Should the level hold, it suggests the trend is likely to resume. Yet if such levels break, it signifies a change in sentiment and trend, and sometimes provide the more volatile reaction as stops are presumably triggered and the crowd switches sides. As we can see from the chart below, it did not disappoint.

EUR/AUD reached a long-term bearish target and formed a bullish divergence ahead of yesterday's rally

Prices have fallen around -500 pips since the trendline break, and just over -1000 pips since the August high. Furthermore, the decline form the September high was in a relatively straight line, which eventually stalled this week around the head and shoulders target.

With the target now reached, bears should take note that there are technical and fundamental reasons to be wary of further losses over the near-term. Firstly, EUR/AUD rallied over 1.3% yesterday during its most bullish session in nearly 4-months after the RBA meeting. A bullish divergence had also formed on the stochastic oscillator (confirmed by yesterday’s rally) and a MACD buy signal has formed, which can be useful for longer-term inflection points. And with RBA bulls disgruntled, and traders heavily net-short AUD futures, perhaps this bounce could have some legs to it.


AUD bulls bemused with RBA meeting

The Australian dollar was broadly sold off as the RBA were not as hawkish as traders were positioned for. Markets were hopeful of a more hawkish stance after September’s inflation rate had entered the lower bound of their 2-3% target range for the first time since 2015. Yet those hopes were dashed when RBA Governor Lowe said during yesterday’s webinar that it’s plausible they could begin raising rates some time in 2023. Ultimately, markets were wrong footed and mean reversion is now underway. But what is particularly interesting is that AUD traders remain at near-record levels of net-short exposure.



Traders remain overwhelmingly short AUD futures

Traders remain heavily short AUD futures, despite prices rising in recent weeks

What is important to note here is that, overall, traders remained heavily net-short AUD in recent months despite prices rising. And if they haven’t capitulated already, there is even less reason to do so following yesterday’s RBA meeting. This also means that AUD may be more susceptible to weak data going forward than it was before yesterday’s meeting.


Strong bullish momentum on the four-hour chart

The four hour chart shows a strong rally into resistance from multi-month lows

The four-hour chart shows how strong bullish momentum from its multi-month lows, and that prices broke above the prior cycle high. Prices have since paused near the October 22nd high and monthly pivot, so there is the potential for a pullback from current levels. Ideally, we’ll see prices hold above the 1.5525 high / 1.5500 handle and form a swing low. And that could be of interest for bullish swing traders who also anticipated an eventual breakout. Further out, a break above 1.5600 / 17 assumes bullish trend continuation.



How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade



This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.