AUD/USD Price Forecast: Bullish pennant pattern is likely in the process of completing

• AUD/USD is likely completing a bullish pennant continuation pattern with bullish implications.
• A break above the May 16 high would validate the pattern and indicate further upside towards the pattern's price objectives.
• The pair has moved sideways towards support at the bottom of an ascending channel and has reached a crucial moment in its evolution.

On the 4-hour chart, AUD/USD could form a bullish continuation pattern. These patterns are composed of a strong rally – the “pennant pole” – followed by a rectangular consolidation – the “flag square”.

Bullish pennants are a sign that the uptrend is pausing before continuing higher. The subsequent rise can be estimated by taking the length of the shaft and extrapolating it from the base of the consolidation upwards, or a Fibonacci ratio of the length.

A break above the top of the flag square (shaded rectangle on the chart below) around the May 16 high of 0.6714 would confirm the activation of the bull flag. This move is expected to extend the uptrend to an initial target at 0.6728, the flagpole's 0.618 Fibonacci ratio. A second, more optimistic price target sits at 0.6788, the full length of the bullish flagpole.

AUD/USD 4-hour chart

The Australian Dollar is in a bullish channel and the price has retreated to the lower red trend line of the channel. This indicates that the price has reached a crucial moment: if it breaks higher, it will validate the bull flag hypothesis and trigger the pattern targets. This is the most likely outcome given that AUD/USD is in a short-term uptrend, and as the old saying goes, “the trend is your friend.”

However, a decisive break below the red trend line would invalidate the bullish pennant and call the near-term uptrend into question.

A decisive breakout would be characterized by being accompanied by a long red candle that closed near its low or three red candles in a row that broke the trend line.