AUDUSD could be in for a long-term reversal from the recent downtrend, as an inverse head and shoulders pattern can be seen on its 4-hour time frame. 

Price is on its way to test the neckline around the .7400 major psychological mark and the 200 SMA.

For now, the 100 SMA is below the 200 SMA, which means that the path of least resistance is still to the downside. However, a break past the neckline could mean that further gains are possible and that the moving averages might cross up later on. The chart pattern is approximately 150 pips in height so the resulting breakout could be of the same size.

Stochastic is nearing the overbought region, which means that sellers are ready to take over. RSI is on the move down, indicating a pickup in bearish momentum. If the .7400 mark holds as resistance, price could make another move towards the .7250-.7300 area.

Last week, economic data from Australia turned out bullish for the Aussie. Retail sales, employment, and trade balance data all came in better than expected while the RBA sounded less dovish in their monetary policy statement. The central bank also toned down their jawboning for the currency.

Meanwhile, data from the US suggests that there is still a lot of uncertainty surrounding the September Fed rate hike. The jobs report came in slightly weaker than expected at 215K versus the consensus at 225K. However, previous readings enjoyed upgrades amounting to 14K in jobs gains.

Chinese data this week could set the tone for Aussie price action, as the world’s second largest economy and Australia’s top trade partner is set to print its industrial production and retail sales data. As for the US, the retail sales report is lined up but this might have a muted reaction since traders are holding out for the August NFP and its implications for Fed policy.

By Kate Curtis from Trader’s Way