USD Head and Shoulders above AUD

Today’s focus has rightly been on the ECB and the euro. But that’s not to say the non-EU markets have been dull. The US dollar, for one, has rallied strongly against most major currencies while the Kiwi has slumped. And now the AUD/USD looks like it may be rolling over too despite the RBA’s decision not to cut interest rates and some mixed-bag Australian data this week. Granted, we don’t have any more Australian or US macroeconomic pointers to provide fresh impetus for the AUD/USD until the key US nonfarm payrolls report is realised tomorrow afternoon. But that will probably not stop some technically-minded traders to take a view on the market. 

At the time of this writing, the Aussie was testing a short term bullish trend around 0.7775. If it breaks through this level then a move down to at least 0.7750 could be on the cards. But as the 4-hour chart below shows, below, there is an even more frightening pattern in the making: a Head & Shoulders reversal pattern. The neckline of this pattern comes in at 0.7750, which thus gives us a measured target of about 0.7590 (0.7750 – (0.7912-0.7750)). This would be below this year’s low of 0.7625, though that’s not to say we will necessarily get there.

Indeed there are a number of other technical levels below the neckline, including the Fibonacci-based targets as shown on the chart, which could also provide some support. Meanwhile the key resistances to watch are 0.7800, 0.7845 and 0.7910, levels that were formerly support and/or resistance. Only a decisive break above the latter would mark a significant change in the trend. Unless that happens, the trend would remain bearish.