AUDUSD might be done from its recent slide, as it formed a double bottom formation on the 1-hour chart and a larger one on the 4-hour time frame. Zooming in to the shorter-term time frame reveals that the pair has yet to break past the neckline around the .7040 level before confirming the potential uptrend.
The pattern is around a hundred pips in height so the resulting rally could be of the same size. If that happens, price could move closer to the neckline of the longer-term double bottom pattern at the .7200 major psychological resistance.
Stochastic is pointing up, which means that buying momentum is in play. RSI is also heading higher, suggesting that an upside break of the neckline is possible. However, the 100 SMA is still below the longer-term 200 SMA, which means that the longer-term selloff might carry on.
Event risks for this setup include the release of the final PMI readings from China, as weak readings could spur another risk-off mood and trigger a sharp selloff for the Australian dollar. The official government manufacturing PMI is expected to hold steady at 49.7 while the Caixin final manufacturing PMI could be upgraded from 47.0 to 47.2.
Earlier this week, the Aussie already suffered a sharp selloff when Asian equities weakened following news that the Chinese government and central bank are making more efforts to shore up their economy and equity market. While the US economy printed a few weak readings itself, upbeat remarks from FOMC officials confirming that a liftoff is set to take place before the end of the year still kept the dollar supported.
Later on, the US NFP is up for release, although this depends on whether or not the US government shuts down this week. Lawmakers are still arguing about funding concerns on the budget and the failure to reach an agreement could lead to a temporary shutdown. Nonetheless, the jobs report is expected to show a slightly stronger pace of hiring in September compared to August, which might fuel Fed rate hike expectations.