AUD/USD — Trading the Aussie Employment Report

Backdrop: When we look at the 1H AUD/USD chart, we see a market that is consolidating in a narrow range roughly between 0.7745 and 0.7875. Last week’s strong US NFP jobs report held the pair from going above 0.7875, but failed to push it below the range support area as we can see in the 1H chart below:

AUD/USD 1H Chart 2/10

(click to enlarge)

Consolidation: Today (2/10), traders faded the AUD/USD before it was able to test the consolidation resistance, and now price is holding just above the range support. Now this failure to reach the top can be a sign of weakness, suggesting that AUD/USD has a good chance of breaking below 0.7745. A break back above 0.78 could put the bias back to neutral and perhaps slightly bullish in the near-term, because price would be back above the 200-, 100-, and 50-hour SMAs. Note that the flat SMAs reflect a sideways market.

Now if price breaks below 0.7740, it is likely going to open up the 0.7625 February-low, which is also the low on the tear. Looking at the 4H chart, note that the pair was trying to form an inverted head and shoulders pattern, but as noted, the NFP threw a wrench in that development.

Still, a break above 0.7860 and the neckline could expose the 0.80 handle, and a falling speedline from mid-January.

AUD/USD 4H Chart 2/10

(click to enlarge)

Given the prevailing bearish trend, we might want to hold on to a bit of bearish bias heading into Thursday’s Australian employment report. Let’s take a look at the data point:

Employment Change (Jan.) Forecast: -4.7K Previous: 37.4K

(click to enlarge; source: forexfactory.com) Unemployment Rate (Jan.) Forecast: 6.2% Prevuuos: 6.1%

Assessing Jobs Data and other AUD Risks: Note in the historic chart that employment data has been been inconsistent in 2014, but managed to show some strength in Q4. Interestingly, those readings beat forecasts everytime, but forecasts continue to decline. This shows that despite some better readings, economists still expect a downturn ahead. Perhaps, this is why the AUD hasn’t really shown any resilience outside of a week of price action. Also, even if jobs data impresses vs. estimates, the main focus for the AUD is whether the RBA will cut rates, and price action in Aussie-pairs show that the market does expect a rate cut.

Trading the AUS Jobs Data: So, if Thursday’s print is in-line with forecasts, we should expect further weakness in the AUD/USD, and limit any bullish attempts to 0.79. The pressure should return towards the 0.7625 low. If the jobs data impresses, there is a chance that AUD/USD can push towards 0.80. However if there is a pullback and price can not stay above 0.78, the bullish outlook would be invalidated, and the pressure again should return to the 0.7625 low.

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Originally published at www.fxpips.com on February 10, 2015.

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