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What's next for the Australian dollar?

John Phillips | Digital Editor | CNBC

The Australian dollar breakout stalled near $0.80. In the longer term, the width of the trading band can be projected upwards to set a target near $0.835. The current consolidation behavior suggests that $0.835 remains a valid target.

There is no question that the Aussie strength is a direct consequence of weakness in the US dollar, which has plunged below $0.93 on the dollar index chart. Although the strength of the AUD may be driven by the weakness of the USD, it's the behavior of the AUD that sets the breakout targets.

The long-term trading band is the most significant feature on the AUD chart. The upper edge of the trading band near $0.775 was established in 2016 April. The lower edge of the trading band near $0.715 was first tested in 2016 June.

The breakout above $0.775 in July was significant because it was the first strong move in 18 months. A breakout above that level can move rapidly to the next resistance feature, but after the initial rally, the breakout has slowed. That suggests a more sustainable and stronger uptrend behavior.

The width of the trading band is projected upward to set a target near $0.835. That is a very reliable price projection method when applied to equity and commodity markets. In FX markets this target calculation is treated with some caution and used as a guide only.

We use Guppy Multiple Moving Averages indicator analysis to identify trend strength and trend changes. In these situations it is a powerful analysis tool.

Trend confirmation comes when the short term GMMA moves above the upper edge of the trading band. That has developed, and it is key confirmation the AUD has moved into a trend, so we can apply longer-term trading methods to capture that behavior.

We use the ANTSSYS trade and analysis method to identify the opportunities as the trend develops. A sustained break above $0.80 is a signal for trend continuation toward $0.835.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.