AUD/NZD Forming Possible Inverted H&S

By: Mike Kulej

The commodity currencies move in tandem more often than not and under most circumstances do not exhibit huge volatility in relation to one another. Their crosses tend to have smaller price swings by comparison to the USD, but it does not mean that they are boring or lack trading opportunities.

For example, the recent behavior of the AUD/NZD has been showing a lot of activity. Just this year the price rallied from 1.2773 to 1.3789 before falling 1000 pips, back to the 1.2800 area. That latest low was reached just last week, followed by a rebound to 1.3148 on Thursday.

AUD-NZD Analysis, June 17, 2011

This is suggesting the sell off may be over and the AUD/NZD is signaling it by forming what a possible inverted Head and Shoulders reversal pattern. So far, we can identify the left shoulder at 1.2920, the head at 1.2801 and the neckline connecting 1.3171 and 1.3160 minor highs. The right shoulder has not formed yet and is, at this point, speculative.

The price must move lower before the right shoulder is identified. While the H&S pattern does not have to be symmetrical, the AUD/NZD needs to get closer to 1.2900, followed by a move above the neckline. Because this pattern has a good track record, one might want to watch this development carefully – a breakout above the neckline (if it happens) could easily lead to a 300-400 pips rally.