April 4, 2014 – AUD/USD (daily chart) has formed a flag pattern within its two-month climb from extreme lows. Normally considered a trend continuation pattern, the flag formation is a small area of consolidation resembling an upright flag, which represents a resting point in the midst of a price advance. This bullish flag pattern has formed after the currency pair broke out above a major resistance area two weeks ago that included: the 200-day moving average, a key bearish trend line extending back to April 2013, and the neckline of a large inverted head-and-shoulders pattern.
That crucial breakout provided an indication of a potential bottoming out of the currency pair which, in turn, suggests further potential gains for AUD/USD. A breakout above the current flag formation points to a short-term upside target around 0.9400 resistance. Even further to the upside, the head-and-shoulders price target resides around the 0.9600 level. Key downside support for the pair currently resides around the broken head-and-shoulders neckline and the 200-day moving average.
James Chen, CMT
Chief Technical Strategist
City Index Group
Forex trading involves a substantial risk of loss and is not suitable for all investors. This information is being provided only for general market commentary and does not constitute investment trading advice. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any financial instrument and should not be used as the basis for any investment decision.
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