Rise of EURAUD is expected to continue after the correction

From the end of August to the middle of September, the EURAUD pair showed a strong wave of growth by rising from a 5-year low of 1.428 to a February high of 1.565. Then, the price was moving in a flat for two months till the result of the ECB meeting on December 15 pushed the EURAUD to a new 10-month high. Now we see the correction after the strong growth, but soon, the upward trend may proceed. 

During the last weeks, the power of the euro lies in the harsh rhetoric of the ECB officials who continue to convince that increase in interest rates is far from being over, especially with double-digit inflation. The reversal in the policy of other central banks will highly likely cool down the ardor of European hawks, but for this, we need to wait for the next decisions of financial regulators, and they will gather for their meetings no earlier than the end of January.

Meanwhile, in the Reserve Bank of Australia (RBA) there are more and more those who speak up for the stopping of the tightening cycle. The minutes of the last RBA meeting published this week have shown that the officials were examining the opportunity to pause together with the possible increase of the key rate on 0.5% or 0.25%. And although in the end, the majority voted for +0.25%, the pause in the tightening cycle became more possible. 

Let’s look at the EURAUD chart. After the forward momentum let the price leave the 2-month flat on December 15, the quotations moved towards the round level of 1.6. It wasn’t possible to achieve it right away, and some buyers of the euro decided to take profits at current levels. The Stochastic indicator has given a sell signal and strengthens corrective moods.

The downside potential is visible up to the previously broken upper border of the flat at the 1.565 level. Growth may resume there to reach 1.6 and then, the last winter's highs around 1.62.

We may offer you the following option of trading strategy: 

1.   Buy EURAUD at the current price. Take profit 1 – 1.59. Take profit 2 – 1.6. Stop-loss – 1.572.

2.   Buy EURAUD during the decrease to the 1.565 level. Take profit 1 – 1.59. Take profit 2 – 1.6. Stop-loss – 1.555.

Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.