AUDUSD - Break or False Break?? SP500 an interesting Short-Term Pattern . + Classic 'Life of Brian' moment.

I have mentioned on many occasions how I see AUDUSD FX as a strong barometer of Risk-on versus Risk-off. - Over the course of this week the AUDUSD has been trying to break over key Resistance around .9400. It made a push earlier this week, however it was not able to sustain this, once again however it is making a push over .9400, currently it stands at 9440, the high of the day so far was .9469.  If this break can be maintained then the odds grow strong that the AUDUSD is likely to make a meaningful push higher over the next few months. IF this were to happen, it is likely to suggest that investors are once again looking to adopt greater levels of risk, which clearly should have bullish implications for US equities.  - The counter argument, would be that a failure here would at a minimum suggest further consolidation of the range of the past few months, with the risk of a much deeper correction. - My favoured view is that an break higher is coming, though I am not certain whether this is it, the next next couple of trading days should produce some clarity on this.

To elaborate on what I am looking at. The pattern I am seeing on the AUDUSD chart is a Right-Angled/Descending Expanding Triangle. (Essentially this is a Descending Expanding Triangle where the top line is Horizontal or near Horizontal). Successful breakouts of these patterns tend to lead to strong Bullish moves. The insert below shows the typical set-up.  [Note: On shorter term charts I call this a 'Slingshot Formation', as the behaviour reminds me of a slingshot, whereby the strong pullback will add impetus to the eventual breakout, leading to a strong and dynamic move.]

The Weekly AUDUSD FX chart below shows the large pattern I am referring too, which has formed over the past 10 months.

Below I have posted some prior examples of this pattern. Note : these patterns are quite rare, they are also prone to false breakouts as per the first example below which shows the US 10 year Note Future through 2009 - 2010. The above chart bears quite a strong similarity to this particular example, thus if it were to repeat the similarity it could mean we may see a further period of consolidation below the upper line for several more weeks prior to eventually breaking out.

The next two examples are from the Continuation Bund Future in 1993 and the Sp500 Future from 2005.

 

 

One other observation from the AUDUSD chart is that this pattern may be part of a much larger Multi-Year 'Cup and Handle' pattern which has been forming over the past 10 years. I am always a touch reticent to label patterns over such large periods, however since this may have strong Bullish consequences for the AUDUSD over the long-term I do think it is worth displaying.

Today's close is quite crucial, since a close well over .9400 could confirm a Daily and Weekly break of the key resistance. However as per the first example above, a reversal and poor close could mean further consolidation lays ahead.

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MIDDAY Update - Markets have turned around sharply, the AUDUSD has slipped back sharply to 0.9400. If this sharp intra-day correction is maintained, and we close around here or lower, it brings the 'False Break' scenario into play.

Also I have noticed the SP500 may be forming a rare '3 Peaks and a Domed House' pattern on the Short-term Chart. - I have attached the chart below, together with a copy of the Idealised '3 Peaks' pattern. This may lead to a correction down towards the start of the pattern around 1090 over the next few days.

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Finally ... Something for the weekend.

Earlier this week I was discussing crowd psychology and its effect on price action.  I will not bore you with details of the conversation, however it did lead to me recalling one of my favourite scenes from 'The Life of Brian' which easily makes it into my 'Top 5 movies of all time'.  The scene is where the reluctant Brian is addressing the mass crowd standing outside his house: it goes as follows:

Brian: Look, you've got it all wrong! You don't need to follow me, you don't need to follow anybody! You've got to think for yourselves! You're all individuals!
The Crowd (in unison): Yes! We're all individuals!
Brian: You're all different!
The Crowd (in unison): Yes, we are all different!
Man in Crowd: I'm not.

Here is the scene -- Pure class.....


Have a great weekend... Wherever you are...........