AUD/USD forecast: Why this textbook bearish pattern may be prone to failure

AUD/USD technical analysis:

The daily chart sports a potential head and shoulders pattern. Whilst this is usually a bearish reversal pattern seen at market tops, it can also be a continuation pattern during a downtrend. Conversely, an inverse head and shoulders pattern is usually associated with market bottoms as a reversal pattern can also be bullish continuation patterns during an uptrend. They are treated the same as the reversal patterns, in that a break of the neckline confirms the move and the distance between the neckline and top of its head is projected from the breakout point, to estimate a potential target.

In this instance, the head and shoulders top projects a downside target just below the 0.6336. And whilst it appears on the cusp of breaking the neckline, bears may want to see if it breaks the 65c handle nearby for added confirmation. But will that be enough?

AUD/USD: A failed pattern can also bring opportunity

As great as this pattern looks, there are a few things troubling me about this pattern.

A breakout from a head and shoulders pattern should be hard and fast. No messing around. Yet AUD/USD has been messing around since Friday's close
AUD/USD is holding above 65c despite weighed-mean inflation coming in softer than expected today.
We're also at end of the month and quarter, heading into the long Easter weekend. And that can lead to fickle price action and false breakouts.
Traders were also net-short AUD/USD by a record amount last week - so shorting the Aussie is NOT a new idea. Far from it.

So unless we're treated to a sudden bout of risk off, my guess is that any break of 65c could be a failure for bears. And in turn, an opportunity for countertrend traders.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.