AUD/USD: The Huge Head-And-Shoulders Pattern That Every FX Trader Is Watching
Matthew Weller | Mar 28, 2021 12:05AM ET
As we noted in yesterday’s analysis of EUR/USD, the US dollar has been on tear over the last month, reversing its trend of relative weakness over the previous three quarters.
The recent moves have flipped the technical bias in favor of the greenback against most of her major rivals, but arguably the most compelling technical setup is in AUD/USD , which has carved out a huge head-and-shoulders pattern over the last three months. For the uninitiated, this classic pattern shows a shift from an uptrend (higher highs and higher lows) to a downtrend (lower lows and lower highs) and often marks a significant top in the chart.
The pattern is typically confirmed by a break below the “neckline”; in this case, the neckline can be represented either by the ascending trend line near 0.7650 (already broken) or the horizontal support level at 0.7560 (still intact). As the chart below shows, the 100-day EMA also comes in near 0.7600, providing another reason to monitor the 0.7560-0.7600 zone as a significant long-term area:
For traders looking to short AUD/USD, one potential strategy would be to wait for rates to confirm the break below 0.7560 to enter a trade with a stop above 0.7600 or 0.7650 with targets at either the 200-day EMA near 0.7400 or even the head-and-shoulders pattern’s “measured move” objective in the lower 0.7000s. Meanwhile, if AUD/USD is able to hold support and rally above 0.7700, it would erase the near-term bearish bias
Key Australian and US data to watch in the coming week:
- Monday: n/a
- Tuesday: US Consumer Confidence
- Wednesday: US ADP Employment Report
- Thursday: AU Retail Sales, US ISM Manufacturing PMI
- Friday: US Nonfarm Payrolls
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.