-- Australian dollar continues to weaken generally
-- EUR/AUD to extend corrective rally to 1.2925
-- Upside risk potential to 1.3050 before forging a peak
LONDON (Dow Jones)--The Australian dollar continues to offload a sizeable chunk of its medium- to long-term bull trends across the board.
For the EUR/AUD cross, this translates to an extended corrective rally to 1.2925, and potentially 1.3050 before forming a top reversal pattern.
The Australian dollar continues to be adversely affected by data pointing to a further slowing in China's economic growth. Metals play a dominant role in leading the AUD's direction, and mining is also dependent on China steering the world out of a global recession.
The November 2011 to February 1.3811/1.2133 bear wave pierced the 38.2% Fibonacci retracement level at 1.2774 during Wednesday's Asian session, to post fresh twelve-week highs.
This corrective bull wave is part of the sub-dividing wave that originated at the March 2 higher low at 1.2262.
On surpassing the late February reaction high at 1.2620, an achievable upside target at 1.2856 was generated. Now, EUR bulls are gathering evidence that this 1.2856 target can be exceeded, at least to the pivotal 1.2925 area.
For details, see the EUR/AUD weekly chart below.
However, the degree of resistance between 1.2925 and 1.3050 is expected to be immense.
The 1.2925 level is a pivot dating back to December 2010, where action was confined within a corrective rectangle for exactly one year before crumbling.
The effect of that downside break means former significant support at 1.2925 is now a significant resistance level.
Then there is the 200-day moving average just above 1.2925 at 1.2963, that lies close to the 50% Fibonacci retracement level of the 1.3811/1.2133 decline, at 1.2972.
To cap an overshoot, a broader, encapsulating 1.618 Fibonacci extension target lies at 1.3050.
A sustained setback below 1.2620 is required to undermine the EUR bullish/AUD bearish scenario.
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