AUD/USD - Assessing Head and Shoulders

Day: When the AUD/USD broke below 0.89, it was completing a head and shoulder pattern. Conventionally this is a reversal signal. However, the bullish scenario was still valid, so further confirmation is needed to turn consider the bearish outlook.

The past 2 days saw a pullback. This may offer either confirmation or make the bearish scenario invalid. A break below 0.88 should suggest a decline to 0.86. This is a pattern breakout target and 50% retracement.

Ahead of tomorrow's Bernanke speech the AUD/USD is in the crossroads. There is bearish pressure from the topping action of the head and shoulder, but there is also support from rising supports (drawn 2 different ways).

4H: The break below 0.8850 invalidated our previous bullish count. Instead, it is possible that the rally t0.92 was a zig zag retracement pattern.

The non-impulse wave suggests this is more likely a corrective pattern.

The RSI is bearish since May, but is bullish since July, so it does not tell much for us.

The main thing to look for is the support at 0.88 and resistance near 0.89 (61.8% retracement). A break below 0.88 after Bernanke's speech should target 0.86.

A break above 0.89 after the speech suggests sideways to bullish mode, and a break above 0.90 suggests a return to the bullish mode.

Beware of an immediate headfake during the speech.