AUDUSD rally hangs on China stimulus or Head & Shoulders

The Australian dollar was a top performer on Thursday, surging to test the 0.6700 resistance despite a rising US dollar. But the Aussie is now at a critical technical junction. Is this a move that could be fuelled by China's new stimulus and record gold prices, or are we forming the right shoulder of a dangerous H&S pattern?


We analyse the tailwinds lifting the AUD against the bearish technical risk of a head and shoulders formation on the daily chart. We map out the key levels at 0.6727 and 0.6660 that will decide the next major move.

Key topics:

• China stimulus & commodities: The PBOC's decision to cut policy rates on January 19 is a direct boost for Australia's economy, while gold ($4,600) and silver (nearing triple digits) provide more support.
  
• Danger zone: The rally faces resistance at 0.6727 (the previous corrective peak). A failure here could confirm the right shoulder of a head and shoulders pattern, risking a drop to 0.6660 and 0.6592.
  
• Bullish breakout: If momentum clears 0.6727, the bearish structure would be invalidated. This would likely confirm a double bottom or (running) triangle breakout targeting multi-year highs at 0.6766.

Trade scenarios:

• Bearish: Rejection at 0.6700/0.6727 + Break below 0.6660 = Head and Shoulders confirmation.
  
• Bullish: Hold above 0.6660 + Break above 0.6727 = Triangle/Double Bottom breakout to 0.6766+.

Are you betting on the China stimulus breakout or fading the resistance at 0.67? Let us know in the comments!

This content is not directed to residents of the EU or UK. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.