The Australian Dollar has been the “Belle of the Currency Market Ball” over the last three weeks, with rates rocketing from below .9000 on March 20th to a high of nearly .9400 today. As my colleague Chris Tedder noted earlier this week, the pair remains in broad upward trend ahead of a relatively data-heavy week for the pair, including important data from the US, Australia, and Australia’s most important trading partner, China.
On a purely technical basis, the pair continues to show bullish signs. Since conclusively breaking above the three-month inverted Head-and-Shoulders pattern neckline at .9080 one month ago, rates have broken above the 200-day moving average for the first time since last April. In addition, this moving average has started to turn higher, indicating that the longer-term trend is turning bullish after a rough year in 2013.
Meanwhile, the AUD/USD has broken out of a near-term bullish flag pattern after a week of consolidation. This classic price action pattern is created by a strong surge higher, followed by a shallow, controlled pullback or consolidation. Once confirmed by a break and close above the top of the flag, the pattern points to a strong bullish continuation. Even looking just at today’s price action, the pair is putting in a Bullish Marubozu Candle* on the daily chart, showing strong buying pressure throughout the day and opening the door for further gains.
In an uncanny development, the measured move targets of both the longer-term inverted H&S pattern (.9080 + 420 pips) and the bullish flag pattern (.9205 + 300 pips) come in almost exactly at .9500. While that’s no guarantee that the pair will necessarily reach that level (especially given the near-term overbought readings on some oscillators), it may serve as a logical target for many longer-term traders; the .9500 area is also where the RBA started to become particularly uncomfortable with its currency’s value and the risk of verbal intervention will grow. For now, the medium-term technical bias remains generally bullish heading into tomorrow’s AU employment report. This bullish bias remains intact as long as the pair holds above .9200, in our view.
* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.
Source: FOREX.com
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