The AUDNZD pair has been showing some signs of a reversal in recent weeks following the break above 1.103. This is showing little signs of letting up and with the flag formation currently in play, I believe we could see further upside. However, with a major resistance level at 1.119, a breakout is required to gauge direction for the week.
The daily chart shows that the pair finally broke out of a clear bottoming formation last month, following a downturn in the pair which has lasted over three years. As a result, any move to recover even a portion of that could bring about a major appreciation of the pair. Given the upside we have seen in the past weeks, the flag formation we are currently seeing is most commonly seen as a continuation pattern. That being said, the resistance level of 1.119 is clearly key, given the support seen around this time last year. Furthermore, the stochastic oscillator is currently pointing towards a possible move lower, along with a weakening momentum as shown by the lower high despite a higher high in price action (bearish divergence). Thus there is a distinct possibility that the pair is going to retrace somewhat back to the downside. On the four hour chart, the flag formation is currently being challenged. Using the fibonacci extension, it is clear that there is a significant amount of support and resistance between these levels. Despite the current downside pressure, with the stochastic oversold and the trend-line having not been broken yet, there is the potential for a move back within the flag. Either way, I am awaiting the breakout from this flag as a indicator of where the pair is going to move for the week. A daily close below 1.1126 would bring a bearish …read more