The Australian dollar has started to correct lower against the greenback after the Australian employment report came in worse than expected, causing the Aussie to drop sharply.
Data showed that employment in Australia unexpectedly declined by 14,600 to 13.75 million in December 2022, missing market forecasts of a 22,500 gain and after a downwardly revised 58,200 jump a month earlier.
The latest reading marked the first drop in employment since July, with part-time employment dropping by 32,200 to 4,128,100, while full-time employment increased by 17,600 to 9,619,000.
Going forward, the technicals look very bearish for the AUDUSD pair as it has formed a double-top price pattern. The Australian dollar needs to break above the 0.7000 handle against the US dollar to change the technical picture.
Sentiment is also alluding to more losses ahead aswell as the crowd is starting to become far too bullish, despite the over 100-point drop.
According to the ActivTrader market sentiment tool some 64 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 as we trade around current levels.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders type pattern could be forming. We may see the AUDUSD pair forming a much larger reversal pattern if a drop towards the 0.6650 area.
If the pattern is correct then a move back to the 0.6000 to region seems plausible. If a strong breakout takes hold above 0.7000, then a rally towards 0.7200 resistance level might start to take place.
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AUDUSD Medium-Term Technical Analysis
The daily time frame shows that a bearish double-top price pattern. These types of double-top 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 0.6950 level area also appear to be another strategy for the bears.
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