EURAUD is trending higher and is moving inside an ascending channel on its 4-hour time frame.

Price has just bounced off support and looks ready for a test of resistance at 1.5400-1.5450.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. This means that the rally is more likely to continue than to reverse. In addition, the moving averages are close to the channel support, adding to its strength as a floor.

Stochastic is on the move up to reflect the presence of bullish momentum. However, the oscillator is nearing overbought levels to signal exhaustion among buyers. In that case, another dip to support at 1.5150 is still possible. 

The main event risk for the Australian dollar is the RBA interest rate decision, during which the central bank could keep rates on hold at 1.50%. The RBA is one of the less hawkish central banks around, but any shift in their tone could still lead to big moves for the pair.

As for the euro, the shared currency had a bearish reaction to the ECB announcement earlier on, but the fact remains that the central bank will begin tapering its asset purchases by next year. German factory orders data is due next and a 1.0% decline is eyed.

There are no other major events lined up for both economies for the rest of the week, so there’s a chance that the current trend could carry on, barring any major changes in monetary policy bias. Overall risk sentiment could also drive price action, with risk-off moves favoring the euro over the Aussie.

By Kate Curtis from Trader’s Way