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AUD/USD in a Precarious Position Ahead of Employment Data

Updated -  Mar 12, 2014 2:35:00 PM By Matt Weller

Last Friday, most AUD/USD bulls were likely feeling ecstatic. The pair had just closed at a new 3-month high, breaking above the neckline of an inverted Head-and-Shoulders pattern, a generally reliable sign of a bottom. I sent out a tweet saying as much Thursday afternoon:

In the chart, I noted that the RBA may not be comfortable with a rally in the Aussie, but in retrospect, the bigger risk came from Australia’s largest trading partner, China. As we detailed earlier this week, slowing economic data in the world’s 2nd largest economy has hurt traders’ risk appetite across the board, with a particularly negative effect on industrial metals and the AUD/USD (see my colleague Kathleen Brooks’ note from yesterday for more on the relationship between the Aussie and iron ore / copper prices).

Regardless of the cause, the recent drop in AUD/USD has left the pair in a very precarious position heading into a highly-anticipated Australian employment report later today. Traders and economists anticipate that the island country created 15,300 new jobs last month, which if realized, would be the second-highest reading in the last 10 months and a dramatic improvement over the 26k jobs lost over the last two months. Another concerning trend in the Australian labor market has been the growth in part-time jobs, which suggests that many Australians are unable to secure stable, full-time positions. Finally, readers should note that the unemployment rate for the month is expected to remain steady at 6.0% after rising to that level last month.

Therefore, the three biggest factors to watch from tonight’s Australian employment report are (in order) the overall change in employment, the full-time vs. part-time split, and the unemployment rate.

Looking to the chart, the failure to sustain the breakout above neckline at .9075 is a very bearish sign, bringing to mind the trading axiom “from false moves, come fast moves in the opposite direction.” While the drop we’ve seen thus far this week was certainly fast (-150 pips from Friday’s close to today’s low), it could still stretch further if the employment report misses expectations.

There are a few encouraging signs for AUD/USD bulls however: the pair is initially finding support at the trend line connecting the head to the right shoulder’s low. More immediately, today’s price action is forming a Bullish Pin Candle* on the daily chart, showing a shift from selling to buying pressure intraday.

If the report meets or beats expectations, bulls will look to push the pair back above .9000 to test the neckline at .9075 or last week’s peak at .9130 next, whereas another weak report could cause the pair to break its bullish trend line and target the .8900 handle or lower by the end of the week. Stay tuned to for our recap/update following the release!

*A Bullish Pin (Pinnochio) candle, also known as a hammer or paper umbrella, is formed when prices fall within the candle before buyers step in and push prices back up to close near the open. It suggests the potential for a bullish continuation if the high of the candle is broken.

Figure 1:


For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom).

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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