The breakout target near 84.5 is a technical target based on the trading band projection. This level has no previous history of support or resistance so this leaves open the potential for the Australian dollar to move above this technical target.
The long trading band at the 77.5 level was established in April 2016 and tested many times as a resistance level. This increases its importance as a support level when the Australian dollar moved above 77.5 to the new resistance level near 81.
The resistance level had its third test in six months in January 2018 before a retreat developed. The new rally will retest 81 as a resistance level.
The frequent previous tests increases the probability that the Aussie dollar can break above resistance. A breakout above this level has a significant impact on Australian interest rates with the Reserve Bank of Australia even more reluctant to increase interest rates when the Australian dollar is strong.
The width of the trading band between 78.5 and 81 is projected upwards to set a target near 84.5. This target is treated with caution and used as a guide only because these price projection methods are not quite as reliable as they are with index and equity charts.
We use the GMMA indicator analysis to identify trend strength and trend changes. Full trend confirmation comes when the short-term GMMA moves completely above the upper edge of the trading band. This is the key indicator and we use the ANTSSYS trade and analysis method to identify the opportunities as the rally continues.
The longer term outlook for the Australian dollar remains bullish.
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.
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