The Australian Dollar(CME:ADM14) has been the “Belle of the Currency Market Ball” over the last three weeks, with rates rocketing from below .9000 on March 20 to a high of nearly .9400 today (April 8). The pair remains in broad upward trend ahead of a relatively data-heavy week for the pair, including important data from the United States, Australia, and Australia’s most important trading partner, China.
On a purely technical basis, the pair continues to show bullish signs. Since conclusively breaking above the three-month inverted Head-and-Shoulders pattern neckline at .9080 one month ago, rates have broken above the 200-day moving average for the first time since last April. In addition, this moving average has started to turn higher, indicating that the longer-term trend is turning bullish after a rough year in 2013.
Meanwhile, the AUD/USD has broken out of a near-term bullish flag pattern after a week of consolidation. This classic price action pattern is created by a strong surge higher, followed by a shallow, controlled pullback or consolidation. Once confirmed by a break and close above the top of the flag, the pattern points to a strong bullish continuation. Even looking just at today’s price action, the pair is putting in a Bullish Engulfing Candle on the daily chart, showing strong buying pressure throughout the day and opening the door for further gains (see chart below).
In an uncanny development, the measured move targets of both the longer-term inverted head and shoulders pattern (.9080 + 420 pips) and the bullish flag pattern (.9205 + 300 pips) come in almost exactly at .9500. While that’s no guarantee that the pair will necessarily reach that level (especially given the near-term overbought readings on some oscillators), it may serve as a logical target for many longer-term traders. The .9500 area is also where the Royal Bank of Australia started to become particularly uncomfortable with its currency’s value and the risk of verbal intervention will grow. For now, the medium-term technical bias remains generally bullish heading into tomorrow’s Aussie employment report. This bullish bias remains intact as long as the pair holds above .9200.