This Great Graphic, composed on Bloomberg shows a potential head and shoulders bottom pattern in the Australian dollar. The left shoulder was set in the first part of the month near $0.6930. The head was carved out in four sessions around the middle of the month a cent lower. The right shoulder was created over the past two days, with yesterday’s spike to $0.6920, before staging an impressive recovery.  

We drew the neckline near $0.7050. The pattern is a little more than two cents (from head to neckline). The minimum measuring objective is found by flipping the pattern over, or around $0.7250. This seems a bit of a stretch at this juncture, but we do recognize a constructive technical tone.  

The Aussie is trading above its 20-day moving average (~$0.7020) for the first time since the first trading session of the year. The five-day average is set to cross above the 20-day average as early as tomorrow. The RSI and MACDs are trending higher. We also recognize that the Australian dollar has become less sensitive to the performance of Chinese shares. 

However, there are a couple closer retracement objectives are may provide near-term targets, as well as mile markers for the Aussie’s advance. The 38.2% retracement of the Aussie’s slide this year is found near $0.7020. Although it is flirted with this area since the end of last week, it has not closed above it. The 50% retracement is near $0.7080 and the 61.8% retracement is near $0.7140.