AUD/USD Forecast: Long-term Bear Flag Breakdown?

AUD/USD fell 1.33 percent to 0.7508 last week as the initial run to 0.7650 on the back of retail sales and service sector ran out of steam following the release of weaker third quarter GDP figure.

Kathy Lien from BK Asset Management writes, "AUD selling pressure is intense and with AUD/USD ending the week below the 100-week SMA, 74 cents could be the next level challenged if the upcoming labor market report falls short of expectations."

The technical charts seem to agree with Lien's view. The monthly chart shows a long-term bearish inverted flag pattern.

Monthly chart

The above chart shows-

• Long-term downtrend as represented by lower highs pattern since Feb. 2012.
• Death cross - Bearish 50-MA and 200-MA crossover.
• Potential bearish flag breakdown.
• RSI has breached the rising trend line and is back below 50.00 (in bearish territory).

A monthly close below 0.7530 would confirm the bearish flag breakdown, i.e. it would indicate the sell-off from the July 2011 high of 1.1080 has resumed. The spot could then test demand around 0.70 handle in the first quarter of 2018.

Clearly, the risk of a bearish breakdown is high... So, as Lien said, it is the Aussie jobs data due for release on Thursday, that would have to do the job of ensuring the AUD/USD does not suffer a downside break of the bearish flag pattern. Also, the USD could be offered following a 25 basis point Fed rate hike on Wednesday and that could help the AUD/USD avoid a bearish breakdown.

Australia economic calendar

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A dismal aussie labor data would open doors for a bear flag breakdown on the monthly chart. However, the daily chart says it could happen after a minor technical rally. 

Daily chart

The bullish-RSI divergence seen on the chart above could yield a minor technical rally to the downward sloping 50-day MA of 0.7655 levels. The moving average is seen sloping to 0.7620 levels over the next few days. 

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