The Australian dollar has started to correct lower against the greenback after the Australian retail sales report came in worse than expected, causing the Aussie to drop sharply.
Basically, awfully weak retail sales numbers come through for December, which is usually a good month for spending. Apart from COVID-times and the introduction of Australia’s value-added tax the -3.9% m/m result for retail sales was the worst ever.
There may well be some seasonal adjustment issues involved given the shift in the buying culture to November’s Black Friday and Cyber Monday sales.
The weak sales numbers were compounded by slowing credit growth data from the Reserve Bank of Australia. Both business and housing credit growth slowed, reflecting rising interest rates and falling house prices.
With this in mind the AUDUSD pair is also challenged technically. It is both overbought and also showing a huge broadening expanding wedge pattern pointing down towards the 0.6850 area.
According to the ActivTrader market sentiment tool some 96 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 higher.
It is worth mentioning that high levels of bearish 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 shows that a large ascending broadening expanding wedge type pattern has formed. We may see the AUDUSD pair forming a much larger reversal pattern if a drop towards the 0.6850 area.
If the pattern is correct then a move back to the 0.6800 region seems plausible. If a strong breakout takes hold above 0.7200, then a rally towards 0.7400 resistance level might start to take place.
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AUDUSD Medium-Term Technical Analysis
The daily time frame shows that a bearish rising price chance pattern. 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 restest of the 0.6650 level area also appear to be another strategy for the bears.
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