AUD/USD Breaks Above Daily EMA 20

AUD/USD (daily chart as of September 10, 2013) finally broke above the EMA 20 significantly for the first time since mid-April, after testing the line for only two trading sessions. This time, the price behavior appears completely different from the previous two choppy tests (pink and silver rectangle shapes on the chart) that eventually failed.

The pair also broke above the EMA 50 for the first time since the steep downtrend started, and surpassed 1.9232 – the last high point we have seen. The currency pair made a higher low on August 30, which may act as the “right shoulder” (RS on the chart) of a potential head and shoulders pattern.

If we connect the high of July 11 and the high of August 19, we get the resistance 1 line (bold red trend line on the chart), which could be considered the revised “neckline” for a potential inverse head and shoulders pattern. Price is currently testing the resistance 2. A buy signal would trigger only if price clears the 1.9315 mark, which is the last significant high point within the entire downtrend move.

Note also that both the MACD and RSI are confirming the price action – for the first time the MACD is above the zero line, and for the first time the RSI is rising well above 50. Price may pull back from around 1.9315 before a final potential breakout. Watch closely the significance of the EMA 20 and EMA 50 support.