EURAUD Potential Scenarios . Will RBA + Chinas PMIs be the Catalysts.
Fundamental & Positioning Context
Monetary Policy Divergence: The European Central Bank's steady policy contrasts with the Reserve Bank of Australia's recent dovish stance and vulnerability to a global slowdown. Australia's reliance on commodity prices and the Chinese economy—both facing headwinds—creates a fundamental weakness for the AUD relative to the EUR. Late Monday China Manufacturing PMI and early Tuesday RBA monetary policy decision should shape the short to medium term outlook for the pair.
Market Sentiment: CFTC positioning data confirms this narrative. Traders are heavily net long on the Euro and net short on the Australian Dollar, indicating a strong market consensus that favors EUR/AUD upside. CFTC shows EUR futures are net long (114.3K), while AUD futures are in net short territory (–59K contracts).
Technical Analysis
Daily Chart
An inverse Head and Shoulders pattern is forming, which is a classic bullish reversal signal. The price has formed the left shoulder and head, and is currently developing the right shoulder.
The neckline of this pattern is the crucial resistance zone between 1.7920 - 1.7940. A breakout above this level would technically confirm the pattern and signal a continuation of the broader uptrend.
Support for the right shoulder is forming around the 1.7770 level.
Four-Hour Chart
This chart provides a closer look at the key levels. The price recently broke 1.7845, a neckline for a minor double bottom pattern
A likely scenario on Monday is we could trade between this support at 1.7845 and the key longer term resistance and neckline for the potential inverse head and shoulders on the daily chart at 1.7920-1.7940 area.
Likely Outlook & Key Scenarios
Primary Scenario (Bullish)
Expect the price to hold above the support levels of 1.7845 or, more importantly, 1.7785.
A subsequent rally to re-test the resistance zone of 1.7920 - 1.7940 is the most likely near-term move.
A decisive break and close above 1.7940 would be the primary trigger for a significant move higher, confirming the inverse Head and Shoulders pattern and targeting the August highs around 1.8080 and beyond.
Alternative Scenario (Bearish Invalidation)
The bullish outlook would be invalidated if the price fails to hold the recent lows. A break and close below the key support at 1.7785 would negate the inverse Head and Shoulders pattern. This would signal that sellers have regained control and could lead to a deeper correction towards the 1.7700 level.