Australia’s dollar is poised to drop almost 2 percent against Singapore’s currency after a technical indicator signaled that a six-month rally has ended, according to Standard Chartered Plc.
The South Pacific nation’s currency, known as the Aussie, may extend losses after completing a “head-and-shoulders” reversal pattern on the daily chart on Nov. 29, said Gerrard Katz, head of foreign-exchange trading at Standard Chartered in Hong Kong.
“The daily chart shows it has broken the neckline,” Katz said in an interview yesterday, adding that the overall bias will be for further weakness. “It seems to be forming a base at current levels and it could move back up to 1.2700 before the next big move down to around 1.2450.”
The Australian currency traded at 1.2667 versus its Singapore counterpart as of 8:30 a.m. in Singapore, according to data compiled by Bloomberg. It reached a 13-month high of 1.3070 on Nov 5. and has since slid more than 3 percent.
A head-and-shoulders is formed when a currency makes three consecutive peaks on a chart, with the middle being the highest. In this case, the “left shoulder” was formed on Oct. 7, the “head” on Nov. 5 and the “right shoulder” on Nov. 24. The reversal pattern was completed when the exchange rate broke below the “neckline” that was formed on Oct. 29 and Nov. 16.
The 1.2450 target is significant as the 200-day moving average lies there on the daily chart, Katz said.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Moving averages help traders determine support and resistance levels. Reversal patterns may indicate the end of a period of sustained rally or decline.