EURAUD was recently in a downtrend before price formed an inverse head and shoulders pattern on its 1-hour time frame.

Price has yet to break past the formation’s neckline around the 1.4775 level before confirming the potential reversal.

The 100 SMA is above the longer-term 200 SMA on the 1-hour time frame, confirming that the path of least resistance is to the upside. Also, the gap between the moving averages is widening to reflect a buildup in bullish momentum. The 100 SMA appears to have held as near-term dynamic support as well.

Stochastic is pointing down to show that selling pressure is in play. If the 1.4775 area continues to keep gains in check, price could still sink to the lows near the 1.4600 handle.

There were no major reports out of Australia and the euro zone last Friday and no major ones are due today. However, central bank biases from both economies could keep the pair afloat. The RBA monetary policy statement kept its neutral tone, reflecting a smooth transition to the new leadership under Governor Philip Lowe.

Earlier last week, rumors swirled that the ECB was considering tapering its bond purchases even before the conclusion of its QE program, leading to a strong boost for the shared currency. However, Governor Draghi mentioned that no such discussions have taken place.

German trade balance, Italian industrial production, and euro zone Sentix investor confidence data are lined up for today, likely adding volatility to euro pairs. Japanese, US, and Canadian banks are closed for the holiday so the low liquidity environment could set the stage for another round of volatile moves.

By Kate Curtis from Trader’s Way