AUD/USD: Bearish pattern points to possible drop

After all the excitement surrounding yesterday’s ECB announcement and today’s NFP report, the market simply exhausted and heading for a well-deserved weekend respite. After the weekly market detachment and decompression though, traders will return to see that a bearish pattern completed earlier today on AUD/USD with a potential target back down in the mid-.9200s.

The pattern in question is a clear Bearish Gartley “222” pattern on the 4-hour chart. For the uninitiated, this formation is named after the author (H.M. Gartley) and page number (222) of the first book to describe it (Profits in the Stock Market) way back in 1935. In essence, it helps traders identify higher-probability turning points in the market from the convergence of multiple Fibonacci levels.

In this case, at least three significant levels all converge around the .9355 level:

  •      The 78.6% Fibonacci retracement of the XA leg
  •      The 127.2% Fib extension of the BC leg
  •      An ABCD pattern (where the AB leg is the same length as the BC leg)

Today’s post-NFP rally took the Aussie into that area before rates turned lower heading into the week’s close. Beyond the price action pattern itself, the pair also saw a small bearish RSI divergence, where the exchange rate made a higher high, but the RSI made a lower high. This shows declining buying pressure at the recent high and increases the likelihood of a near-term top in the market.

 

Source: FOREX.com
 

The textbook target of a Gartley pattern is at the 61.8% Fibonacci retracement of the entire ABCD pattern at .9265 (not shown), but the pair may also find support near the 38.2% Fibonacci retracement at the .9300 round handle. Of course, any pattern can fail; in this case, a confirmed break above the top of the resistance zone at .9365 would open the door for a continuation higher toward the 2-month high around 0.9400.

 


About the Author
Matt Weller

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).

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