Premium Watchlist Recap: Nov. 11 – 13, 2024

This week our currency strategists focused on the UK Employment Report (October 2024) and… Australian Employment Report (October 2024) For potentially high quality settings.

Of the eight scenario/price forecast discussions this week, Arguably, two discussions saw both financial and technical arguments raised They become potential candidates for overlay trading and risk management. Check out our review of those discussions to find out what happened!

Watchlists are price predictions and strategy discussions supported by fundamental and technical analysis, and are a crucial step towards creating an account High quality discretionary business idea Before working on a risk management and trading plan.

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On Monday, our strategists set their sights on UK employment data and its potential impact on the pound. Based on our events guide, expectations were for the unemployment rate to remain steady at 4.0%, with average earnings growth slowing to 3.9% from 3.8%. The number of claimants was expected to rise by 30.5 thousand after the previous rise of 27.9 thousand. With these expectations in mind, here’s what we were thinking:

“GBP rising” scenario.

If jobs data comes in stronger than expected, particularly showing resilient wage growth, we expected this to dampen expectations of significant interest rate cuts from the Bank of England. We focused on GBP/CHF for potential long strategies in a risky environment, especially in light of SNB President Schlegel’s recent comments about cutting interest rates and limiting the strength of the franc. In a risk-off environment, GBP/CAD has long made sense given the Bank of Canada’s recent dovish shift and trade uncertainty with the upcoming change of US administration.

“GBP decline” scenario.

If UK employment figures disappoint, showing rising unemployment or slowing wage growth, we thought this could weigh on the pound. We were looking at potential selling strategies for GBP/USD if risk sentiment turns negative, especially in light of the pair’s downtrend and its position near key short-term resistance levels. If risk sentiment remains positive, GBP/AUD short positions look promising given the RBA’s recent hawkish stance on inflation risks.

What actually happened

The UK jobs report came in significantly lower than expected:

• Unemployment rate jumped to 4.3% (4.0% expected; 3.9% previous)
• Regular wage growth (excluding bonuses) fell to 4.8% from 4.9%
• Total salaried employees decreased by 9,000 during the quarter
• The number of claimants rose, with the October figure at 26.7k (expect 30.5k)

Market reaction

This result essentially triggered our bearish bias for GBP, and with risk appetite turning negative due to geopolitical tensions and China concerns, GBP/USD has become our focus.

Looking at the GBP/USD chart, we saw some selling pressure after the jobs release, but it wasn’t until the US session that the pair broke below the pivotal S1 support level, likely supported by hawkish Fed comments from the bank chief. Richmond Fed Barkin on US labor market resilience and business sentiment will lead to further upside for the dollar

The pair found some support near the S2 pivot level (1.2717), but downside momentum remained strong as the Bank of England’s chief economist’s comments on gradual easing failed to offset the impact of weak jobs data. By Friday’s close, GBP/USD reached the S3 pivot point (1.2601), driven by additional weak UK economic data updates during the session, including disappointing GDP and production numbers.

Judgment

So, how do we do? Our fundamental analysis expected sterling to weaken as a result of disappointing employment data, which came in as expected. Our price behavior to watch before coming to a short positive conclusion was to see the pair trading consistently below 1.2900, a scenario in addition to the pair already moving below our original discussion price due to the strength of the US dollar.

For traders who entered short positions after the weak jobs data, they could have had a significant downward move. Managing the trade would have been relatively straightforward given the clear bearish momentum and technical levels providing guidance.

Overall, we believe this discussion is “very likely” to support a net positive outcome as fundamental and technical catalysts align well, showing strong downside momentum and hitting multiple support targets throughout the week.

On Wednesday, our Forex strategists were focusing on Australian employment data for October and its potential impact on the Australian dollar. Based on our events guide, the economy was expected to add 25.0K jobs (vs. 64.1K previously), with the unemployment rate holding steady at 4.1%. With these expectations in mind, here’s what we were thinking:

“Australian Progress” scenario.

If jobs data comes in stronger than expected, we expect this will reinforce the RBA’s hawkish stance on keeping interest rates “sufficiently tight.” We focused on AUD/CHF for potential long strategies if risk appetite is positive, particularly in light of the SNB’s recent dovish stance and interest rate cut plans. In a risk-off environment, the AUD/CAD has been our favorite pair given the Bank of Canada’s recent comments about “holding bearish”.

The “Australian collapse” scenario.

If the Australian labor market showed significant weakness, we believed this could fuel interest rate cut expectations from the RBA. We viewed the AUD/NZD as potential selling strategies if risk sentiment remains positive, particularly in light of New Zealand’s recent rise in inflation expectations and visitor arrivals data. If risk sentiment leans to the negative, EUR/AUD has long made sense given the ECB’s less pessimistic stance and improving German economic indicators.

What actually happened

The October jobs report showed mixed results but expectations were generally disappointing:

• Employment increased by 15.9K jobs (vs. 25.0K expected)
• Full-time employment increased by 9.7K (vs. 15.0K expected)
• Part-time jobs increased by 6.2K (vs. 5.0K expected)
• The unemployment rate remained steady at 4.1%, as expected
• Participation decreased to 67.1% from 67.2%
• Monthly working hours increased marginally by 0.1%.

Market reaction

This result essentially triggered our bearish scenarios for the Australian dollar, and with risk appetite shifting to caution ahead of the key US data release, the EUR/AUD pair has come into focus.

Looking at the EUR/AUD chart, we can see that the pair was consolidating in a symmetrical triangle pattern before the data was released. Weaker jobs data sparked an initial move higher, breaking above triangle resistance around 1.6250.

The euro’s gains were supported by recent positive German economic data, including better-than-expected wholesale prices and French CPI numbers. However, political uncertainty in Germany and dovish ECB comments (particularly from Vice President De Guindos hinting at further interest rate cuts) have likely limited the bullish momentum.

The EUR/AUD pair tested the pivot point level (1.6325) during the European session but struggled to maintain gains above this level. The pair eventually settled near the triangle breakout zone as broad US dollar strength and fading Fed rate cut expectations weighed on flows through interest rates.

Judgment

So, how do we do? Our fundamental analysis correctly forecast potential weakness in the Australian dollar as a result of disappointing jobs data, which has materialized in the actual numbers. Our technical analysis also accurately identified the symmetrical triangle pattern and potential breakout levels.

We believe this discussion was “most likely” supportive of a net positive outcome as fundamental and technical catalysts align well. Weaker Australian jobs data provided the catalyst for a triangle breakout, although the sustainability of the move was influenced by broader market themes and mixed euro sentiment.

If traders entered buy positions on the triangle breakout and targeted the pivot point level, they could have had a good move (maximum at around 73 pips at the highs of the week). However, proper trade management would have been crucial given the volatile price action and eventual pullback from pivotal resistance at the end of the week.

The key lesson here is that while our analysis has taken the right direction, external factors such as US data expectations and evolving ECB policy expectations have played important roles in mitigating follow-through. This highlights the importance of staying aware of broader market themes even when trading specific event reactions!