AUDUSD has recently been on a short-term climb, but it looks like the rally could be reversed now that a head and shoulders pattern formed on its 1-hour forex time frame. 

 Price is a few pips away from testing the neckline below the .8700 handle and may be due for a breakdown soon.

If that happens, the pair could fall by as much as 100 pips, which is the same height as the chart pattern. This could take AUDUSD to the next support zone around the .8550-.8600 levels. Stochastic is heading lower, reflecting a pickup in selling pressure.

MACD, on the other hand, is on middle ground and barely offering any clear clues. For now, the 100 SMA is moving above the 200 SMA, indicating that there’s a chance that the uptrend could carry on.

Event risks for this trade include the release of the FOMC minutes later on, which might confirm whether or not the Fed is on track to tighten sometime next year. Hawkish remarks could reaffirm dollar strength against the “historically high” Australian dollar.

By Kate Curtis from Trader’s Way