Thursday, January 3, 2013

eur/aud analysis



Happy New Year everybody! Today I want to give you my short term analysis for eur/aud currency pair. From now on, occasionally, I want to take separate Forex pairs and do forecasts and analysis on them. Some of them might be long term, some short term trades, some maybe covering only a few days’ period and predictions for a day or maximum a week. If you have been reading my blog regularly you must have found that I like crosses and eur/aud, as well as gbp/aud have been covered in my posts (with lots of examples) quite a few times. Last year was very good for these pairs as they have been in very big swings (both up and down) that lasted for 2-4 months. It was pretty easy to trade the pairs for swing and trend traders and the securities simply change trend at the peak or bottom and trended in the other direction with minor retracements.  How about this year? Let us think together!

Euro was very much pressured by these huge debts from mostly South European countries and a lot of economists, finance analysts, investors, speculators and average traders doubted whether the European Union will survive. So, we saw sharp moves in Euro crosses. However, as in the end of July the head of ECB announced that the Central Bank was planning to do anything it takes to save the Euro zone Euro bounced off significantly and strengthened against most currencies. The move continued till the end of the year and some believe it is going to continue this year too (at least against Japanese Yen and US dollar). This might be true. However, I do not think Euro will be that strong against commodity currencies. Why?

If you look at daily charts of various Euro pairs (and possibly Pound) you will see that at the end of the year Euro and Pound managed to make new highs against US dollar and Japanese Yen. However, it failed to do this with Australian dollar. Look at eur/aud and especially gbp/aud to see for yourself. 



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My predictions about eur/aud moves in first quarter of 2013

On the 7th of October eur/aud reached its’ peak and started ranging. Just before the end of last year it tried to reach this peak (on the 27th of December), but failed and reversed sharply. In my opinion it will continue going down till some significant support is reached. I believe Euro bears will target 1.2160 (the low of the range) that was made on the 12th of November (2012). I am not sure whether a downtrend will develop or not. My best guess is that range trading will continue. BOA (Bank of Australia) indicated that they are not planning to make any more rate cuts. This is bullish for aussie. However, they have not made any hawkish statements about rate increases in the future either. That leads me to think that the pair may continue in the range for the first quarter of 2013. 

eur/aud range top and bottom

For the time being the top of the range is 1.2830-1.2800 level. I think these levels will not be reached soon. I might be wrong, but still it is my speculation. 

The bottom of the range stands at 1.2160-1.2100 level. With some volatility and bounces the pair has good chances of revisiting this level again. Don’t expect it to get there in a few days. The pair sits at support at the time of writing and there is a ‘noise area’ ahead with some bumpy ride down (a few days down, a few days up). Look how the pair was going up from the 13th of November to the 9th of December. Pretty shaky ride, huh? Shaky it was. The same can be said about a swing down that happened from the 7th of October till the 1st of November (2012). This and the above mentioned moves are very similar. It happens quite often. If you see a strong move up (in a range) you will see a similar move down in a very similar fashion. Support and resistance levels of these moves will also coincide. Action equals reaction and vice versa. Have this in mind. If you study charts more carefully you will see a lot of moves that look like mirror trades or inverted trades. 

Possible eur/aud support and resistance levels

Look at the chart below to find current possible support and resistance levels for the pair. Red lines represent support and resistance areas. They maybe subjective as technical analysis deals with the past and any significant fundamental piece of news can change those technical areas that were important in most recent past. The same can be said about ‘noise areas’ - a level where currency pair stalls for some period of time. 

How to day trade eur/aud 

How can one take advantage of this information? If one has very small capital it is quite logical to try to day trade eur/aud limiting risk on each position and trying to increase profits. If we assume that we expect a swing downwards to continue we would be willing to pick only those trades that are in the direction of the swing. The first trade could have been made at the break of 1.2670 level. The pair formed a reversal pattern at the top and when the pattern (123) was confirmed by breaking the above mentioned level we knew that a real reversal took place and the short term trend is now down. 

Now, there are a few possibilities to implement these trades. One is to wait for retracements that often happen during Asian sessions and then place sell orders when the retracement is over and moves in the direction of the trend continue. This usually happens during European sessions. I see a lot of possibilities to trade in the direction of a trend during London session. As has been said, moves usually start during European session, continue or stall during US session and prices usually retrace during Asian session. In the morning, trends often resume. Not always, but more often than not. So, if there is a retracement in eur/aud it is an opportunity to enter a day trade with some 30-50 pips stop loss and a take profit order somewhere near the closest support. If you are planning to open a few positions you can exit the first one at the closest support and another one at the next one. Of course, you can have more than a few positions. You have to be sure where you expect to exit each position though. You see my levels of support. Try to draw some of your own and make your own decisions. 



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Ok. I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Disclaimer
Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.