Mapping the Market: Charts produce a warning sign for the Australian dollar

Until recently, things looked promising for ​the Australian dollar, but ongoing bouts ​of risk aversion emanating from ‌the Iran ​war have exposed weaknesses, and now the charts are sending a potential warning sign.

The Australian dollar is currently forming ‌a pattern that technical analysts call a head-and-shoulders top. This pattern often signals a shift from a bullish trend to a bearish trend. It features three peaks - with the highest in the ‌middle and two lower peaks on either side. Lows marking pullbacks between the highs ‌are a key aspect of the pattern. A line drawn between those lows, known as the neck-line, would provide a key reference level to calculate potential losses once the formation is complete.

The Aussie dollar has formed ⁠the ​left shoulder at the ⁠April peak of $0.7221 and the head at this month's high of $0.7277. It has yet to form a right ⁠shoulder. If it does, this would raise expectations of a turn lower in the Aussie. Since ​the formation is not complete, it is difficult to calculate possible losses, but some traders ⁠might target the $0.6979 April 13 low and $0.6860 April 2 low. However, if the Australian dollar advances above ⁠the ​head at $0.7277, this would increase expectations of further gains.

What the chart shows: * A left shoulder formed at the end of a rally culminating in April

* Another phase ⁠of gains created a higher peak in May, which would be the head * Right shoulder ⁠has yet to ⁠form

(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.) (Peter Stoneham is a Reuters ‌market analyst. ‌The views expressed are his own. Editing by ​Burton Frierson and Nia Williams)

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)