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This currency is poised to strengthen further

Australian one-hundred dollar banknotes are arranged for a photoshoot.
Brent Lewin | Bloomberg | Getty Images
Australian one-hundred dollar banknotes are arranged for a photoshoot.

The Australian dollar has been stubbornly strong this year despite slowing growth in China and Australian policymakers' attempts to talk down the currency and charts indicate it's set to strengthen further.

The AUD/USD has been hammering out a bottom near $0.88. The August 2013 rebound from this area saw a rapid climb towards $0.98 prior to the retreat and retest of support near $0.88. The rally rebound from near $0.88 that began in February 2014 has found solid resistance near $0.94.

The rebound behavior that developed is a classic Guppy Multiple Moving Average (GMMA) three-point breakout pattern.

The first part of the pattern is a test of the lower edge of the long-term GMMA. This happened in October 2013. The rally pause around $0.94 and test of the upper edge of the long-term GMMA is the second part of the pattern. This period also shows compression in the long-term GMMA which increases the probability of a trend change.

In the shorter term we should look for a retreat from $0.94 followed by a new rally and breakout above the upper edge of the long-term GMMA. This is the third part of the GMMA three-point breakout pattern. The initial target for the breakout is near $0.98.

Read MoreWhy Australia shares may be poised to rally

The GMMA relationships between the short and long-term GMMA suggest the AUD/USD is poised for a significant uptrend continuation. We trade the short-term breakouts with the ANTSSYS approach to capture short-term moves in preparation for riding the longer-term trend change development. The breakout from $0.94 to $0.98 can move quickly as shown in October 2013.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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  • Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.

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