AUD/USD Follows Through After Trendline Breakout

One of the more interesting use of patterns – especially when they are automated – is to consider the support, resistance, and trendlines they are made up of rather than considering the pattern as a whole. The reason for this is because sometime patterns develop and even trigger entries that are not necessarily appropriate/valid for the market trend for that the chart. Consider the AUD/USD which has been in a neutral Directional Bias on the daily chart.

5-4-2011 9-37-35 AM.jpg

AUD/USD Daily chart with Channel Down chart pattern alert courtesy of Autochartist

The Channel Down was occurring in a distribution market trend on this time frame but the resistance of the pattern is a valid exhaustion or breakout level to watch. The key was to determine whether strong crude and overall strong commodities prices (in addition to the weak U.S. Dollar) could help the AUD/USD climb. Inflation continues to be a real concern for the Reserve Bank of Australia so could higher rates be in the cards. Likely not as the damage from the Brisbane floods continue to effect housing negatively.

The breakout through the resistance level has reached another resistance target – in this case the upside predication level or profit target. What is interesting to note is that the market trend seems to have transitioned into a mark up trend making continuation higher more likely. Therefore now it would be helpful to watch for trending chart patterns such as Channels and Wedges and buy at corrections lower to support on those chart patterns.