The Euro is currently testing the bottom of a trend channel against the Aussie Dollar.
This creates one of those situations where traders may get a buy set up if the channel support looks like being clearly rejected but a sell set up if there is a clear break under the channel. This channel provides some useful mile posts for how to react to potentially market moving news such as tonight’s Spanish bond auction.
I’ve outlined the trend channel on the higher time frame daily chart below. A bounce off the bottom of this channel sets us up for a potential move back to the channel resistance which coincides with the 200 day moving average (green line). This is the sort of scenario one could imagine if Spain’s bond auction was better than expected and next week’s Australian CPI figure gives plenty of scope for the RBA to cut rates.
A break below the trend channel sets us up for an initial test of the dashed support line. Overlap below that support starts to look like resumption of the major downtrend with the potential for new lows. A really poor bond auction tonight could be a source of real concern for the Euro.
Honing in on the hourly chart. I’ve outlined a couple of typical triggers for entry. A rejection of the trend channel support and a buy entry would be triggered by a close above the dashed line. This would represent a move above the 200 period moving average (green line) and a close above the high of the daily candle that recently tested the channel support.
If we get bad news a close below the trend channel would trigger a short trade.
If we get a setup, I’ll post a follow up blog with thoughts on stop loss management and profit objectives