Earlier this month, we highlighted some of the bullish longer-term developments in AUD/NZD, including a triple bullish divergence in RSI and the break of a 1-year bearish trend line. The pair proceeded to rally to 38.2% Fibonacci retracement resistance near 1.0900 last week before falling sharply on a weaker-than-expected inflation report out of Australia. Despite last week’s setback, the technical picture on AUD/NZD is turning bullish once again for a possible retest of resistance at the 1.0900 handle.
The pair carved out a nice inverted Head-and-Shoulders pattern in the latter half of last week. This classic bottoming pattern shows a clear shift from a downtrend (lower lows and lower highs) to an uptrend (higher lows and higher highs), and often marks a meaningful bottom in the market. Adding to the bullish evidence, rates pulled back in a shallow controlled manner yesterday, indicating that buyers remain in control of trade and creating a short-term bullish flag pattern (green).
The secondary indicators are painting a more mixed picture. One sign of concern for buyers has been the 4hr RSI, which has not been able to rise above the key 60-65 resistance zone since the very beginning of the month. Bulls will be watching for a confirmed breakout above this zone to suggest that the pair could potentially break above longer-term resistance near 1.0900. Meanwhile, the 4hr MACD recently crossed above its signal line and the “0” level, suggesting a shift to short-term bullish momentum.
At this point, the inverted Head-and-Shoulders and bullish flag patterns point to a possible rally toward the 1.0900 handle, with measured move targets at 1.0895 and 1.0905 respectively. However, given the longer-term Fibonacci resistance in the 1.0900 zone and lack of major data from Australia and New Zealand, rates may struggle to break through that barrier this week. Conversely, a reversal back below support at today’s Asian session low and the Head-and-Shoulders neckline at 1.0820 would cast doubt on the short-term bullish outlook.