AUDUSD has been in a strong downtrend lately but it looks like the bearish momentum is fading. Price formed higher lows on the 4-hour chart while stochastic made lower lows, creating a bullish divergence.
Stochastic has yet to climb out of the oversold region before indicating a pickup in buying pressure. Similarly, RSI is starting to move up, suggesting that buyers could take the pair higher. If so, a double bottom formation might be seen, adding confirmation to a potential long-term reversal.
The 100 SMA is still below the longer-term 200 SMA for now, which suggests that the path of least resistance is to the downside and that the selloff might resume at some point. Zooming out to long-run time frames shows that the descending trend line connecting the latest highs is still intact.
Event risks for this trade setup include the speeches by FOMC officials this week, as these events played a role in supporting the dollar last week. Dudley, Evans, Tarullo, and Williams are set to give testimonies early on while Fed head Yellen has another testimony lined up before the weekend.
Other potential catalysts include the potential US government shutdown if Congress isn’t able to come up with a funding bill by September 30. This could delay the release of the US NFP, as some government offices will be temporarily closed as a result. Nonetheless, the jobs report is likely to show a 202K increase in hiring for September, up from the previous 173K gain.
With that, leading jobs indicators such as the ADP non-farm employment change report and ISM PMI readings could also push AUDUSD around. Weak data could undermine the likelihood of a Fed rate hike before the end of the year, possibly resulting to dollar weakness, while strong figures could spur gains.
As for the Australian dollar, building approvals data and retail sales figures are due throughout the week, along with final PMI readings from China. More signs of a slowdown from Australia’s top trade partner could mean more weakness for the currency.