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AUDUSD: testing the broken neckline

One of the best looking setups among major pairs can be seen on AUDUSD, where we have a beautiful reversal pattern, and according to price action rules, we should soon see a further rise. We are talking here about the setup on the daily chart, which only adds credibility (setups on daily and weekly charts are always the most powerful).

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Since the beginning of September, AUDUSD has been creating an inverse head and shoulders, so a strong bullish reversal formation. In our case, everything has gone according to plan, and on Friday buyers managed to break the neckline (grey) of this structure. At the same time, that resistance was at the 23.6% Fibonacci of the main yearly downtrend. The new week is starting out with a small pull-back, which is rather typical for this kind of price action. Simply put, the broken resistance is being tested as a support.

We will have a strong buy signal if the price closes the day above the grey area. On the other hand, if the price comes back deep below the neckline, we could have a false breakout, which could spell trouble for the bullish dreams for a long time. There is one rule when it comes to trading on false breakouts – you do not mess with them.

 

 


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