InstaForex

October 12, 2021

AUD/USD Upside Breakout or Fakeout?

 AUD/USD is on a tear to the upside in today’s session, confirming an inverse head-and-shoulders neckline break.


Will upcoming top-tier events from Australia and the U.S. keep the momentum going?


AUD/USD Upside Breakout or Fakeout?

Since the start of October, the Aussie has been not only holding its own but outperforming against the other major currencies, despite data showing the economic recovery may be topping out at the moment.


It’s possible that forex traders may be focusing more on covid developments, including increased vaccination rates and easing of restrictions, which would likely make the current slump in data temporary and bring back monetary policy tightening speculation.



If that’s the case, then the recent rally in AUD/USD may continue to have legs, especially from technical traders who may be jumping in after the pair just broke through the neckline of the inverted head-and-shoulders pattern marked on the four-hour chart above.


But this week, we’ve got top-tier economic updates coming on the forex economic calendar from both Australia and the U.S. that may shift sentiment on the pair short-term.


Most notable among the bunch are the monthly U.S. CPI update, FOMC meeting minutes and the latest Australian employment update. Expectations are for another tick higher in U.S. inflation, the Fed minutes will likely show tapering is coming in 2021, and that Australian employment will disappoint. If this is the case, then that upside breakout in the chart above may see resistance.


In that scenario, we’ll be watching for a retest of that broken neckline for potential buying support, if we don’t see a disastrous Australian jobs update and U.S. CPI coming in at or below expectations. If retested and bullish reversal patterns from there, that could draw in both technical and fundamental buyers to keep the new uptrend going.


If the upcoming events play out in any other way, then we’ll stay in watch mode to see how the markets react, particularly if we see a way higher CPI read from the U.S. and/or a better-than-expected turn in Australian jobs data.


What do you guys think? Is that an inverted head-and-shoulders pattern marked on the chart and if so, is that a real neckline break?