AUD/USD: The huge head-and-shoulders pattern that every FX trader is watching
Matt Weller, CFA, CMT March 26, 2021 9:20 PM
AUD/USD is one of the most compelling technical setups to take advantage of the recent US dollar strength
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:
Source: StoneX, TradingView
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 Non-Farm Payrolls
Learn more about forex trading opportunities.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.