By Greg Holden – The AUD/USD’s long-lasting bullish channel was finally breached a few weeks back and what we see happening now may be described as the formation of a “double-top,” or “M,” formation on the weekly chart, but on a somewhat minor scale.
A “double-top” formation is when the price moves to a high point, but then corrects downward only to bounce up once more and create a second peak, forming what looks like the letter “M.” Typically when this formation occurs the completion of the second top indicates an impending retracement of the previous trend which brought it to its first peak. A clear example of this can actually be seen in this pair below months prior to today.
In the middle of chart below you can see a “double-bottom” or “W” formation, which is essentially the same thing, but upside down. Notice how it dropped, formed a low point, corrected upward, then dropped to a second low point… and then retraced the entire downward movement that formed the initial low point to bring us to where we are today.
Now the previous “W” formation was an extended and very pronounced formation, which is why I say that this one is a minor version of that. Given the strength of Australia’s economy recently I wouldn’t expect it to retrace the entire movement back down to 0.6000. But a retracement to the next significant level, near 0.8000 wouldn’t be too far fetched, in my opinion.
A few technical points:
Point 1: Here you can see the “double-top” as it is forming.
Point 2: The Relative Strength Index (RSI) seems to show a steadily declining price movement, seeming to suggest that the downward move has built some momentum after breaking its bullish channel.
Point 3: The MACD/OsMA shows a wide-arcing bearish cross, which only strengthens the notion that an impending downward movement may be in the works.
AUD/USD Weekly Chart
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