AUDUSD appears to be forming a forex reversal chart pattern on its 4-hour time frame, indicating that the downtrend is already over. A triple bottom can be seen, as price found support around the .8700 handle and is unable to head any lower for now.
With that, the pair could test the neckline of the pattern around the .8850-.8900 psychological levels. An upside breakout could confirm that more gains are in the cards, creating a forex reversal from the previous downtrend. Take note that the chart pattern is approximately 200 pips in height, which suggests that the resulting uptrend might be at least the same size.
Forex Reversal Forecast
For now, the 100 simple moving average is acting as resistance for price action, yet stochastic and MACD are hinting at a pickup in buying momentum. A return in selling pressure could lead to a test of the .8700 support or perhaps a breakdown and continuation of the longer-term downtrend.
Event risks for this forex reversal trade include the Chinese CPI and US retail sales release on Wednesday, which might indicate whether the correction is over or a reversal is likely to take place. Strong Chinese CPI could convince traders that a recovery is underway in the world’s second largest economy and Australia’s main trading partner, which could be positive for the Australian dollar.
Meanwhile, weak US data could be a catalyst for the AUDUSD forex reversal, as it would confirm that the Fed is not ready to tighten next year. As indicated in the latest FOMC minutes, further challenges to growth remain and policymakers are inclined to keep interest rates low for a considerable period of time even after easing ends.
Take note though that risk sentiment could continue to affect forex reversal price action, as the increased uncertainty surrounding the Ebola outbreak and geopolitical tensions might keep AUDUSD gains in check.
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