As we await the FOMC outcome much later today, it’s worth zooming out and looking at the bigger technical picture in the likes of AUDUSD, which tends to be a big mover on QE/risk appetite themes.
AUDUSD has been in a huge triangular formation that began forming back in June of last year (only becoming clear with the third major point early this year and the fourth point forming the bottom of the triangle back in June). The pair recently topped out ahead of the top of the triangle and fell sharply back to 1.0175, but has since rallied viciously back higher in anticipation of the Fed’s QE3. The coming two weeks are likely to tell us whether the formation of that is now some 15 months old will break apart or continue.
Chart: AUDUSD
Note the top of the triangle sloping downward and then the more local downward sloping trendline. Those looking for a repeat of the QE2 announcement – see annotation – will be looking for a break through the downward sloping consolidation lines and a retest of 1.10 and beyond. If this massive formation is a topping formation, on the other hand, then the latest activity looks an awful lot like an A-B-C wave correction – perhaps a Wave 2 consolidation of a budding downtrend? That eventuality will only be proven if we get a high momentum break of the 1.0175 low with a very steep downtrend, a brutal third wave. Stay tuned – AUDUSD won’t stay inside this formation forever. I prefer the latter scenario, but that would be handily rejected for now if the pair manages to pull back higher through the recent 1.06+ high.
John J Hardy,
SAXO BANK