It was another busy week with global inflation updates and plenty of central bank speak, our strategists had a diverse coverage set this week on both currency-crosses and major pairs.
Out of five discussions, only one scenario outlook saw both fundie & technical arguments triggered to become a potential candidate for risk management overlay. Check out our review on that discussion to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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AUD/USD 30-min Forex Chart by TradingView
On Wednesday , our strategists focused on the upcoming Australian jobs data (as discussed in our Event Guide), it’s potential to spark volatility for AUD/USD and how traders may react. The main idea was that if expectations of a weak jobs gain played out, that the downtrend in AUD/USD would stay intact, given the recent sentiment shift giving the U.S. dollar’s strength.
We thought that there was room for a bounce, and if so, then we’d be watching for bearish reversal signs around the confluence of indicators, mainly around Fibonacci area and moving averages.
Well, AUD/USD did rally, even ahead of the Australian jobs report, testing the 50% Fibonacci retracement level right at the release. The Australian jobs update was arguably net negative as there was a net job loss of 6.6K and the unemployment rate ticked higher from 3.7% to 3.8%. Also, the labor force participation dipped from 66.7% to 66.6% to reflect weaker confidence in the jobs market. This outcome actually triggered our bearish fundamental argument for a AUD/USD short bias.
AUD/USD actually bounced on the news, but then the market failed to sustainably trade above the 61% Fibonacci area (our noted “line in the sand”) and began producing lower highs on the chart–it was at this point our technical argument for a short bias was triggered. Following both fundie and technical triggers, AUD/USD continued to move lower, likely with the help of the broad risk-off environment due to falling Fed rate cut hopes and rising geopolitical tensions.
And on Friday, volatility and risk-off vibes picked up massively thanks to news reports of Israel’s strike on Iran, sending AUD/USD down to our discussed potential target areas (S1 (.6380) then S2 (.6360)), where a bottom was quickly found.
Broad sentiment and AUD/USD quickly reversed after it had been assessed the attack was “muted and carefully calibrated,” which was then followed by both countries down playing the military action. This signaled to the markets that neither country wanted to escalate further, reducing the risk of wider conflict in the Middle East dramatically…for now.
Overall, the fundamental scenario of weak Aussie jobs played out and our line in the sand technical argument was tested, held and led to a selloff. And given that the following move was enough to test our target area, we’d argue that this discussion was high likely supportive of a positive outcome, and arguably without the need for complex risk/trade management.
So again, only one discussion was valid on both technical and fundamental fronts this week, but sometimes all you need is one good trade, right?
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