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
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