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The Australian dollar has started to rally against the greenback as the US dollar index pulls back from a twenty-year high, with traders now considering that a major price top could be in.
Yesterday, the Reserve Bank of Australia increased its cash rate by 25 basis point at its monetary policy board meeting today versus the 50-basis point rate hike that was widely expected by the market.
In reaction the AUDUSD and fell quite sharply as FX traders were not foreseeing the minor increases prior to the today’s decision. However, the AUDUSD pair soon bounced back and staged a 100-point rally.
With this in mind we are seeing a bullish double-bottom price pattern starting to play out across the lower time frames. This could hint that the AUDUSD still has substantial upside to go.
According to the ActivTrader market sentiment tool some 77 percent of traders are bullish 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 since the recent rejection from the 0.6600 area.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that a large double bottom pattern may be forming. Typically this is a good sign for bulls, as these are strong bullish reversal patterns.
If the pattern is correct then a move back to the 0.6700 to region seems plausible. If a strong recovery takes hold, then a rally towards 0.6800 resistance level might start to take place.
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AUDUSD Medium-Term Technical Analysis
The daily time frame shows that the pair looks to be trading back towards a falling wedge pattern breakout. These types of patterns are typically considered to be one of the most reliable bullish reversal patterns.
According to technical analysis we could see more a pending technical retest. Selling a retest of the 0.6600 level area also appears another solid strategy for the bears. The opposite is also true of the price moves back inside the wedge.
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