May 19 (Reuters) - The Australian dollar remains highly sensitive to swings in global risk sentiment, particularly those linked to tensions between the United States and Iran. From a technical standpoint, this volatility may be laying the groundwork for a more sustained move lower in AUD/USD.

On the weekly chart, AUD/USD is showing early signs of a head-and-shoulders formation, a classic reversal pattern that typically emerges after an uptrend and can signal a broader move lower.

The structure comprises four elements: a left shoulder, head, right shoulder and neckline. The left shoulder forms as price rallies and then retreats. The head develops when price pushes to a fresh high before pulling back again. The right shoulder is formed if the market rallies once more but fails to surpass the high of the head, creating a lower peak broadly comparable to the left shoulder. The neckline is drawn by connecting the two reaction lows between the shoulders and the head, and it may slope higher, lower, or remain flat.

In AUD/USD, the left shoulder appears to be in place, while the head is still developing. So far, the formation spans roughly 18 weeks of price action, which implies that, if the pattern does complete, it is likely to do so over an extended timeframe rather than quickly. Confirmation would only come if price later breaks and closes below the neckline, at which point a measured downside target could be derived from the height of the pattern.
AUD/USD weekly chart:


(Peter Stoneham is a Reuters market analyst. The views expressed are his own. Editing by Louise Heavens)