As we head into yet another important FOMC statement, I wanted to bring up a currency pair that is somewhat sheltered from any Fed-induced volatility.
I have mentioned AUDNZD several times since November of last year. Those commentaries mostly centered around the bottoming pattern that has been taking shape over the last twenty seven months. With the four-year 3,700-pip decline putting the cross at multi-year lows, the inverse head and shoulders pattern (second chart) comes at a pivotal time for the pair.
The monthly chart below is the same one I posted last November and is just as applicable now as it was then.
As you can see from the chart above, AUDNZD has made a habit of moving in major bull and bear cycles, each one lasting anywhere from three to five years. We just happen to be coming off a four-year decline and forming a possible inverse head and shoulders pattern in the process.
Since November of last year, the Aussie cross has continued to bottom and is now trading less than 200 pips below the pattern’s neckline (shown below).
What stands out about this particular structure is how skewed the risk/reward scale is at the moment. The measured objective is a massive 1,300 pips from the neckline, giving us plenty of upside to work with while limiting downside risk via the well-defined neckline.
Should AUDNZD confirm the pattern with a weekly close above the level shown below, we could be looking at a multi-month rally toward the 1.2780 handle.