AUD/NZD – Watch Out for the Bullish Continuation Breakout

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AUD/NZD - Watch Out for the Bullish Continuation Breakout

After finding resistance at 1.0890, AUD/NZD has been consolidating. It completed a price top when it fell below 1.0697.

AUD/NZD 4H Chart 5/28
audnzd 4h chart 5/28
(click to enlarge)

As we can see in the 4H chart, price is below the 100- and 50-period simple moving averages (SMAs) and the RSI has tagged below 30. This shows a market that has shifted away from the prevailing short-term bullish trend. However, the structure of the decline in the second half of May has not been indicative of a trend. In fact, traders can see a pennant or a flag pattern development.

Today, there is a relatively sharp rebound from about 1.0570. It is still too early to say, but we should gear up for a possible bullish continuation scenario especially if price climbs back above 1.07. Then the pressure will be on the falling trendline and the 1.0750 handle. A break above 1.0750 would ten be a bullish continuation breakout, putting pressure on the 1.0890-1.09 area, with risk of climbing higher.

Now, if AUD/NZD continues to slide lower, the next key support will be around the 1.0530-1.0550 support/resistance pivot area. We can give it some elbow space, but a bullish market should not fall below 1.05, or the pair would likely be in a sideways market.

AUD/NZD Daily Chart 5/28
audnzd daily chart 5/28
(click to enlarge)

The daily chart shows a market that has been in a bullish reversal from a bearish market spanning from November 2014 to April. After a double bottom in April, we have been seeing a sharp rally that has taken price above the 200-, 100-, and 50-day SMAs. The RSI has climbed above 70, which shows initiation of the bullish momentum. The next level to watch for resistance above the current high of 1.0890 would be the 1.10 psychological level. A break above 1.10 then opens up the 2014-high around 1.13

However, if price falls below 1.05, the bullish market should be put on the shelf, and we should anticipate a return towards the 1.0350-60 area. Then we should watch what happens there because if it still holds above 1.0350, we would have a neutral-bullish market. Otherwise, below 1.0350, AUD/NZD would be in a neutral-bearish one.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.