I love moments like this because I get to watch buyers and sellers exchange blows in real time. Sure, that happens in every session, but there’s nothing quite like the moment a pair challenges a key level.
This is particularly the case when dealing with a distinct level that has stood the test of time and price.
You may recall the (potential) inverse head and shoulders on the AUDNZD that has been forming since mid-2016. I first mentioned this structure on November 8th ahead of the RBNZ and U.S. elections.
The slide that occurred just hours after that commentary was released put a hold on things. But that wasn’t an issue considering we needed a close above the neckline at 1.0765, which was still 250 pips away at the time of that writing.
It did, however, give us a new low to work with for the right shoulder. On November 23rd I pointed out how the bullish potential was still alive so long as the 1.0360 area held as support.
Now almost one month later we can see that the post-U.S. election low has held up, at least so far.
Also, the bulls are now testing a 4-hour trend line that extends from the October 26th high at 1.0755. Today’s retest is the third since its inception nearly two months ago.
A close above it would expose key resistance at 1.0765. This level is also the neckline for what could be a 530 pip bullish reversal pattern.
So how did I come up with 800 pips for the title of this post?
If buyers can break the 4-hour trend line resistance, there’s a good chance that we’ll see a retest of the neckline, which is about 270 pips away. And if that happens we’ll have an inverse head and shoulders pattern that is one step away from confirming.
The measured objective for that structure comes in at 1.1295, which just so happens to line up with several highs from March. Combine the 530 pip objective with a 270 pip move, and you get 800 pips of upside potential.
Keep in mind that we are missing two key ingredients for all of the above to play out. The first being a close above 4-hour trend line resistance near 1.0490 and the second being a daily close above the neckline at 1.0765.
It’d be a gross understatement to say the bulls have their work cut out for them, but the potential is certainly there.
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