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Earlier today, I wrote about a reversal pattern on CADJPY.
The inverse head and shoulders points to higher prices, and so far, CADJPY bulls are back in the driver’s seat.
I bring this up concerning AUDCHF because the patterns are almost identical.
That isn’t surprising given that the two are positively correlated so far in February, at least on the 4-hour time frame.
With that in mind, if you’re already trading CADJPY, you will want to be careful about doubling up your risk on a pair like AUDCHF.
Regardless, the inverse head and shoulders below is ideal, in my opinion.
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The pattern developed following a 380 pip decline since late December.
You can also see that this AUDCHF reversal pattern has a clearly defined left shoulder, head, and right shoulder.
The pair also recently confirmed the pattern with a close above the neckline near 0.6580.
But just like CADJPY from earlier today, AUDCHF buyers have to contend with a key resistance level just above the current price.
Notice how 0.6620 previously served as support for the pair.
It’s also the location of last month’s gap lower, which means there are probably pending orders camped out around that 0.6620 region.
We also have a scheduled speech from RBA Governor Lowe in a few hours at 7 pm EST.
That said, it’s at a leadership forum, so we may not see too much volatility from the Australian dollar around that time.
As for the AUDCHF reversal potential, it all hinges on neckline support now.
As long as the 0.6580 region is intact as new support on a daily closing basis, the reversal pattern is alive and well.
Just remember that it’s going to take a daily close above that 0.6620 area to open the door to the measured objective.
That objective, by the way, is near 0.6730 given the 160 pip height of the structure.