A double top looks to be forming the AUDUSD on the intraday, hourly timeframe, hinting at a medium term reversal in the pair.
Having dipped sharply mid-March on the suggestion of an interest rate hike in the US, the Aussie dollar found support at 0.9000 flat, and has strengthened versus its US counterpart ever since. After numerous fresh 2014 highs, which in forex signals an extremely bullish bias, the pair reached highs at 0.9293 on March 27. The level served up some considerable resistance, initiating a correction to 0.9217 support, from which price rebounded to the aforementioned high. The high once again acted as strong resistance, and price now sits just shy of support at 0.9234. The action has formed something of a double top, suggesting the long-term uptrend may finally be losing momentum and, in turn, more downside to come.
A break of the neckline at 0.9217 would validate the pattern, and offer up a number of forex signals including a traditional double top target at 0.9140-0.9148. One thing to bear in mind however, is that to reach this level the pair will have to overcome two weeks of substantial buyer strength. In light of this, it the more risk averse trader may look to stagger targets towards the pattern inferred end point. An initial target could be previous support at 0.9189.
Another thing to consider is the potential for a short term correction before the pattern becomes valid. Stochastics are currently oversold, serving up some contrarian forex signals, meaning there could be a small amount of buying strength to come before the downside momentum resumes. Look to price action around 0.92419 as an indication of the magnitude of this strength, and in turn, the size of the potential correction. A close above this level would offer up previous resistance at 0.9258 as a nice short entry.
Worse than expected PMI data out of the US could catalyze the break that validates the pattern, so keep an eye on the pair mid European afternoon.
To contact the reporter of this story; Samuel Rae at Samuel@forexminute.com