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Jobs Report in Focus as Bear Market Pressures AUD/USD

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Australian Dollar, AUD/USD, AUD/JPY, AU Jobs Report, IG Client Sentiment – Weekly Outlook

  • Australian Dollar continued to feel the pressure last week
  • Will a local jobs report revive some spirit for the Aussie?
  • Technical and sentiment analysis seems to not bode well

The Australian Dollar extended losses against the US Dollar this past week. Despite a more-hawkish Reserve Bank of Australia at the beginning of this month, prevailing risk aversion in financial markets is weighing on the sentiment-linked currency. In the week ahead, traders should be mindful of the Australian jobs report.

On Wednesday, the country is expected to add 30k jobs in April as the unemployment rate declines to 3.9% from 4.0%. That would be the first time on record to see the figure below 4%. This could fuel more hawkish RBA policy expectations, potentially boosting the Australian currency. With that in mind, how is the technical landscaping shaping up to be for the Aussie?

AUD/USD – Bearish

Unfortunately, the Australian Dollar’s technical posture has been deteriorating, in line with weakness since April. This past week, AUD/USD confirmed a breakout under the critical 0.6968 – 0.7000 support zone. That has exposed the 0.6777 – 0.6832 range below, which are lows last seen in June 2020. Clearing the latter could pace the way for a trajectory towards the 2020 low.

Still, keep a close eye on RSI. Positive divergence seems to be prevailing, showing that downside momentum is fading. This can at times precede a turn higher. With that in mind, there could be some room for the currency to recover. The real test of a bounce would likely be the falling trendline from March on the chart below.

Getting there does entail pushing back above the 0.6968 – 0.7000 zone, which could establish itself as new resistance. Above that zone, the falling trendline could reinstate the dominant focus to the downside. Extending losses would expose the 100% and 123.6% Fibonacci extension levels at 0.6635 and 0.6486 respectively.

Chart Created in TradingView

Australian Dollar IG Client Sentiment Analysis – Bearish

Taking a peek at IG Client Sentiment (IGCS), about 76% of retail traders were net-long AUD/USD towards the end of last week. At times, IGCS can behave as a contrarian indicator. Since the majority of investors are biased to the upside, this could spell trouble for the Aussie. This is as upside exposure increased by 7.34% and 19.98% compared to yesterday and last week respectively. With that in mind, these signals are offering a stronger bearish contrarian trading bias for AUD/USD.

Australian Dollar Forecast: Jobs Report in Focus as Bear Market Pressures AUD/USD

*IGCS data used from May 12th report

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter





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Market Update – May 19 – Fears mount

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Trading Leveraged Products is risky

Stock markets sold off, after a slide on Wall Street, with tech stocks in Hong Kong particularly under pressure. Tencent slumped after reporting no revenue and individual company reports aside markets are concerned by the impact of China’s zero Covid policy, the Ukraine war and fear that inflation will get out of control, despite aggressive central bank actions that are adding to the headwinds to the global recovery. Earnings reports from retail giants added to concerns that high inflation would slow global growth, with Target warning of a bigger margin hit due to rising fuel and freight costs as it reported its quarterly profit had halved. One day earlier, Walmart warned of similar margin squeezes. Bonds were supported in Australia and New Zealand, despite a decline in Australia’s jobless number. The 10-year Treasury yield has picked up 1.3 bp though and the Bund yield is up 0.6 bp at 1.01% in early trade. Oil rebounded to $107.90 whilst Gold appreciated to $1814Australia’s unemployment rate fell to 3.9% – the lowest level in almost 50 years – as employment rose 4k over the month.

  • USDIndex recovered to 103.88 
  • EquitiesNikkei lost -1.9%, the ASX -1.7%, while Hang Seng and CSI300 are down -2.5% and -0.2% respectively. USA100 cratered -4.73%, with the USA500 -4.03% lower, and the USA30 off -3.73%.
  • Yields 10- and 30-year rates plunged over 11 bps intraday to lows of 2.875% and 3.065%, respectively.
  • Oil down to 105.15 – Bloomberg cited “people familiar with the data” as saying that API data will report a drop of 5 million barrels in gasoline inventories for last week.
  • Gold up to $1830.
  • FX marketsGBP and EUR falling to parity against the Dollar. However, USDJPY has weakened to 128.15 after surging to a 20-year peak at 130.85 in late April.

Today – The calendar includes ECB Meeting Accounts, US Jobless Claims, New Zealand trade balance and Japanese inflation.

Biggest FX Mover @ (06:30 GMT) USOIL – Gapped down to 105.14, which filled up immediately. MAs have flattened, MACD signal line & histogram are negatively configured, RSI 38.56, H1 ATR 1.07, Daily ATR 5.45.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribution.






Previous articleMarket Update – May 18

Having completed her five-year-long studies in the UK, Andria Pichidi has been awarded a BSc in Mathematics and Physics from the University of Bath and a MSc degree in Mathematics, while she holds a postgraduate diploma (PGdip) in Actuarial Science from the University of Leicester.




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AUD/USD drops back towards 0.6950 on mixed Australia employment numbers

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  • AUD/USD retreats towards intraday low despite teasing the first weekly gain in five amid mixed Aussie jobs report.
  • Australia Employment Change eased below forecasts and prior while Unemployment Rate refreshed record low in April.
  • Repeated Fedspeak over 50 bps joins softer yields to weigh on USD amid sluggish markets.
  • Risk catalysts will be crucial to watch for clear directions, US second-tier data eyed too.

AUD/USD pares intraday gains around 0.6960 as the Aussie jobs report flashed mixed reports during early Thursday. Also challenging the pair moves is a lack of major data/events elsewhere as well as a softer USD.

That said, Australia’s headline Unemployment Rate marched 3.9% forecast while refreshing the all-time low but a fall in the Employment Change to 4K, versus the market consensus of 30K and 17.9K prior, seems to have weighed on the AUD/USD prices. It’s worth noting that the softer-than-expected prints of the Aussie Wage Price Index for Q1 2022 probed the RBA hawks the previous day.

Read: Australian labour report leavs AUD sidelined, so far

Given the softer Employment Change and Wage Price Index , the RBA’s 40 bps rate hikes are questionable at the moment, which in turn probes the AUD/USD pair’s recent corrective pullback. It’s worth noting that the risk-aversion wave and downbeat conditions at the largest customer China, due to the covid resurgence, weigh on the AUD/USD prices. Recently, Shanghai’s refrain from total unlocks joined fresh virus-led activity restrictions in Tianjin, the port city near Beijing to portray COVID-19 woes.

Additionally, inflation woes in the developed nations join the geopolitical fears surrounding Russia to sour the sentiment and exert downside pressure on the AUD/USD prices.

Even so, An absence of major data/events and repeated comments from the Fed policymakers seemed to have recently paused the risk-aversion wave. That said, US 10-year Treasury yields dropped 11 basis points (bps) to 2.88% the previous day, mostly unchanged at around 2.89% by the press time of Thursday’s Asian session, whereas S&P 500 Futures drop 0.50% at the latest. It should be noted that the US Dollar Index (DXY) drop 0.14% around 103.77 by the press tie.

Having witnessed an initial reaction to the Aussie jobs report, which matched market forecasts, AUD/USD sellers are likely to return amid Wednesday’s Q1 2022 Wage Price Index and the risk-off mood. This emphasizes today’s risk catalysts and the US second-tier data relating to housing and manufacturing to forecast the pair moves.

Technical analysis

AUD/USD sellers attack short-term key support around 0.6960 as traders struggle to pare the biggest daily loss in a week.

A confluence of the 100-HMA and a weekly rising trend line, around 0.6960, restricts the immediate downside of the AUD/USD prices, a break of which will quickly direct bears towards the 0.6900 threshold ahead of highlighting the monthly low near 0.6830.

Meanwhile, recovery remains elusive until the AUD/USD prices cross a two-week-long horizontal resistance area near 0.7040-60.

 



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British Pound Sinks as Traders Pare BoE Rate Hike Bets, GBP/USD Dances on Support

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BRITISH POUND FORECAST:

  • GBP/USD takes a turn to the downside as traders pare back bets on Bank of England future rate hikes
  • Market pricing on monetary policy, however, could turn more hawkish in the coming weeks as red-hot UK inflation will likely required a more aggressive response from the central bank
  • This article looks at cable’s key technical levels to keep an eye on in the near term

Most Read: April UK Inflation Hits a 40-Year High at 9%, GBP/USD Slides

After staging its biggest rally in 17 months on Tuesday, the British pound reversed course on Wednesday and took a sharp downward turn, sliding 0.65% to 1.2411, as traders pared back money market bets on Bank of England future rate hikes following slightly lower-than-anticipated inflation data.

By way of context, the April UK consumer price index rose 2.5% m-o-m and 9.0% y-o-y, a tenth of a percent below consensus expectations. While this was the first time that the report did not surprise on the upside in recent months, it is misguided to believe that in itself is a victory, given that price pressures continued to broaden, pushing the cost of living to a new four-decade high.

With CPI expected to climb to double digits during the second quarter, and rising wages threatening to exacerbate the trend, the central bank will likely become more hawkish over the coming weeks and signaled it will have to pull back accommodation more aggressively despite rapidly slowing growth.

True, the likelihood of a recession has increased sharply of late, but the UK labor market is still in a good place and should withstand a steeper path of interest rate hikes without collapsing. In any case, policymakers, who now face a large credibility problem, may soon recognize that it is better to go hard now on the tightening cycle to restore price stability than to risk a long-term stagflationary slump that that could be far more damaging to the economy.

If markets begin to price in a more forceful monetary policy response to the current inflationary environment from the BoE, GBP/USD should stabilize and manage to retrace some of the 2022 losses, especially as the Fed has ruled out supersized 75 bps hikes for now. However, any recovery in sterling should be moderate, as headwinds affecting the UK economy are likely to reduce appetite for long positions in the European currency.

In terms of technical analysis, despite Wednesday’s sharp pullback, cable remains above the psychological 1.2400 level at the time of this writing. If traders manage to defend this support and spark a rebound in the coming sessions, the first resistance to consider appears at 1.2650, followed by 1.2835. On the flip side, if downside pressure accelerates and sellers breach the 1.2400 area decisively, GBP/USD could be on its way to retest its 2022 lows in short order.

GBP/USD TECHNICAL CHART

GBP/USD Chart Prepared Using TradingView

EDUCATION TOOLS FOR TRADERS

  • Are you just getting started? Download the beginners’ guide for FX traders
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  • IG’s client positioning data provides valuable information on market sentiment. Get your free guide on how to use this powerful trading indicator here.

—Written by Diego Colman, Market Strategist for DailyFX





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