EURAUD: Wedge Formation Signals a Critical Breakout Ahead

09 January 2025

EURAUD presents a classic wedge formation on the chart, developing after a sharp downtrend that began at the end of December. The decline gained momentum on January 2nd, signaling a strong bearish sentiment. However, since then, the pair has entered a bullish correction phase, forming a rising wedge, marked by two converging black trendlines.

This pattern is particularly interesting because it is widely recognized as a trend continuation pattern, suggesting that the prevailing downtrend may resume once the wedge completes. The price is currently moving within the wedge, but as we approach its apex, a decisive breakout becomes imminent.

A breakout below the lower black trendline, confirmed by a daily close, would be a strong signal to sell, aligning with the bearish trend prior to the wedge.
Conversely, a breakout above the wedge's upper black line would indicate short-term bullish strength, but not necessarily a buy signal yet. Just above the wedge lies a key horizontal resistance, marked in yellow. Only a breakout above this yellow resistance would provide a compelling long-term buy signal.

In theory, the wedge should resolve to the downside, continuing the prior bearish trend. However, traders must remain vigilant for either scenario, as a breakout in either direction could shape the pair's trajectory in the coming days.