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Head and Shoulders Formation Hints at Bearish Reversal
Forex
Economic
Summary:
This condition suggests that momentum is stretched, and bears will be looking attentively at these levels to try and seize control of the movement.
Sell
TradingAUDUSD
EXP
0.65390
Entry Price
0.64900
TP
0.65800
SL
0.65555 +0.00124 +0.19%
0
Point
Flat
0.64900
TP
CLOSING
0.65390
Entry Price
0.65800
SL
The ISM Manufacturing PMI softened to 48.2 in November from 48.7 in October, marking the ninth consecutive month the U.S. industrial sector has been in contraction territory. This figure also fell short of the 48.6 forecast. Delving into the details, the Employment sub-index slipped further into contraction, decreasing from 46 to 44, pointing to weakening momentum in the labor market. Furthermore, the New Orders Index fell to 47.4, signaling a third straight month of contraction. The only component showing firmer footing was the Prices Paid Index, which rose to 58.5, indicating continuous cost pressures for businesses.
Following the latest round of weaker U.S. economic data, traders have aggressively increased their bets on interest rate cuts in December, with the probability now standing at 87%, according to the CME FedWatch Tool.
In political news, rumors have surfaced suggesting that White House National Economic Advisor Kevin Hassett could be named as the next Fed Chair, succeeding Jerome Powell. However, U.S. President Donald Trump stated on Sunday that he would not disclose his choice publicly but confirmed he had already made his decision, adding: "We will be announcing it."
U.S. inflation indicators showed signs of stabilization in September. The Producer Price Index (PPI) rose 2.7% year-over-year (YoY), aligning with forecasts and suggesting that wholesale price pressures have leveled off. The Core PPI offered slight relief, easing to 2.6% from 2.9%, falling below expectations.
However, consumer activity appeared to weaken. Retail Sales rose only 0.2% month-over-month (MoM) in September, a noticeable slowdown from the 0.6% increase in August, pointing toward softer consumption trends. Compounding this, the Conference Board reported that household sentiment deteriorated significantly in November, with Consumer Confidence dropping 6.8 points to 88.7 from 95.5 in October.
Higher-than-expected Australian inflation is moderating expectations for a rate cut by the Reserve Bank of Australia (RBA), a factor that could help limit losses for the AUD. RBA Governor Michelle Bullock emphasized the central bank's unanimous decision to hold the cash rate at 3.60% and confirmed that a rate cut was not discussed at the meeting.
Conversely, data released by RatingDog on Monday showed that China’s Manufacturing PMI unexpectedly fell to 49.9 in November from 50.6 in October. This figure fell below the market consensus of 50.5. As a reading below the 50 benchmark level suggests contraction, the unexpected result is weighing negatively on the Australian Dollar, given Australia’s strong trade ties with China.
Technical Analysis
The AUD/USD pair is currently developing a potential Head and Shoulders (H&S) pattern near the resistance level of 0.6563. This level served as the first shoulder on November 2nd. In the recent session, the price rallied to these same levels before reacting sharply downward, forming the second shoulder. The central peak (the "Head") of the pattern is located at the November maximum of 0.6580.
If the price fails to successfully close above the 0.6563 resistance level, it would favor the start of a bearish correction toward the 0.6493 zone, the next key support level. This support is technically fortified as it aligns perfectly with the 0.50% Fibonacci retracement level, acting as a strong price magnet for the pullback.
The 100-period and 200-period Moving Averages (MAs) on the 2-hour chart are clustered at 0.6494 and 0.6506, respectively. This MA cluster is strategically aligned near the Fibonacci retracement zone, further increasing its magnetic pull on the price. Additionally, the Relative Strength Index (RSI) has reached the 73 level, entering clear overbought territory. This condition suggests that momentum is stretched, and bears will be looking attentively at these levels to try and seize control of the movement.
Trading Recommendations
Trading direction: Sell
Entry price: 0.6540
Target price: 0.6490
Stop loss: 0.6580
Validity: Dec 12, 2025 15:00:00
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