Our currency strategists this week focused on another round of employment situation updates, this time from Australia and the UK, as potential drivers of short-term opportunities.
Of the four scenario/price outlook discussions this week, It can be said that only one discussion saw both fundamentalist and technical arguments raised. To become a potential candidate for Trade and Risk Management. Check out our review of this discussion to see what happened!
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EUR/AUD currency pair 24 hours Chart by TradingView
On Wednesday, our strategists focused their attention on the upcoming Australian employment report. Analysis in our event guide shows that recent survey data has been mixed on the jobs sector.Which led markets to expect a slowdown in net job creation and a stable unemployment rate at 4.1%.
Based on these expectations, here are a few possible scenarios we’ve been watching:
Australian bullish scenario: If the jobs data comes in stronger than expected, we expected the EUR/AUD to attract the primary bears and if that happens, we would wait for a break below the vertical neckline and shoulders. We believed that this scenario could attract technical sellers and could push the move towards S1 (1.6370) or even S2 (1.6130) if risky flows are present in the markets.
Bearish scenario for the Australian dollar: If employment figures disappoint or show mixed results, we could expect GBP/AUD to find support at the bottom of the consolidation zone. This could also be supported if risk sentiment deteriorates broadly, or if any net positive news from the severe GBP weakness in economic data benefits.
Well, Thursday came, and the Australian jobs report decided to throw us a result even stranger than Australia’s breakdancing at the Olympics.
The headline unemployment rate rose to 4.2% (from 4.1%), its highest level in two and a half years. However, the underlying components painted a much stronger picture:
- Net job additions were 58.2K (vs. 20.2K expected).
- June figures revised upward from 50.2k to 52.3k
- The participation rate rose to a record high of 67.10%.
- Full-time jobs increased by 60.5 thousand jobs, while part-time jobs decreased by 2.3 thousand jobs.
This result has raised our basic argument for a bearish bias in the EUR/AUD pair.as strong core job growth outweighed a rise in the unemployment rate. The pair rallied immediately after the data was released but immediately declined within the first hour, eventually falling below the 1.6600 neckline support level as expected.
The EUR/AUD pair continued to fall during the session, finding buyers around the 1.6535 level, which served as a strong support area throughout early August.
Although the pair did not reach the first support target at 1.6370, the move was in line with our expectations. By the end of the week, the EUR/AUD pair was hovering around 1.6525, which is well below the neckline support level we mentioned, indicating that sellers remained in control.
So how did our strategy discussion go? Well, it was as accurate as a kangaroo using a GPS – we got the direction right, but we slightly overestimated the size of the move.
Our expected move based on fundamental analysis was in place as strong core jobs growth should spark net buying in the AUD this week. The structural price breakdown we were watching also materialized as the pair broke through the crucial support level at 1.6600.
total, We rate this discussion as “very likely” to support a possible positive outcome. For those who shorted when the fundamental and technical arguments were raised on Thursday, they had a strong chance of seeing a net positive outcome, depending on the trading plan chosen and how it was executed.
The sustained move below the 1.6600 level provided a great opportunity for traders to profit from the breakdown, even if the S1 target was not quite reached. The limited decline to the previous support provided a clear level for risk management.
It is worth noting that the broader context for the Australian dollar has been bullish throughout the week. The Australian dollar has seen steady gains against most major currencies, supported by a combination of local data, global risk sentiment and hawkish comments from RBA Governor Bullock. Overall, this fundamental strength and the outcome of the events likely contributed to the continued pressure on the EUR/AUD pair.
In light of these developments, traders who combined our analysis with a broader view of the strength of the Australian dollar were entering a position with a high probability of success, which is the goal of this content series: Find high quality scenarios with strong success probabilities for beginners to apply their risk management and trading practices to as appropriate for their trading situation.