The Australian dollar has started to correct lower against the greenback after the Australian central bank released the Meeting Minutes from the previous interest rate decision.
Breaking down the Minutes, the Australia’s central bank decided to hike at its May meeting due to inflation risks from weak productivity growth, persistently high services inflation and faster-than-forecast rental increases, saying more rate rises may be required.
The Minutes of the Reserve Bank of Australia’s May 2 policy meeting said board members also considered a pause, but that the inflation risks warranted a 25-basis point increase, after holding rates steady in April,
Critically, the Minutes noted that “Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve.”
With this in mind, the AUDUSD pair is also challenged technically and is trading in a serious head and shoulders price pattern, which could indicate more downside losses ahead.
According to the ActivTrader market sentiment tool some 32 percent of traders are bearish towards the AUDUSD pair. As we typically look to fade sentiment biases, this could mean the AUDUSD pair could continue to reverse lower.
It is worth mentioning that high levels of bullish sentiment suggest a classic contrarian sentiment trade is still in the making, so do be careful buying this pair at current level, especially as we trade around current levels.
AUDUSD Short-Term Technical Analysis
The four-hour time frame a show that a large head and shoulders type pattern has formed. We may see the AUDUSD pair forming a much larger reversal pattern if a drop towards the 0.6600 area.
If the pattern is correct then a move back to the 0.6400 region seems plausible. If a strong upside breakout takes hold above 0.6800, then a rally towards 0.7000 resistance level might start to take place.
AUDUSD Medium-Term Technical Analysis
The daily time frame shows that a bearish head and shoulders pattern has also formed. Although a much larger one.. These types of patterns are typically considered to be one of the most reliable bearish reversal patterns.
According to technical analysis we could see a much more steeper price drop if bulls don’t soon start to take charge. Selling a retest of the 0.6600 level area also appear to be another strategy for the bears.