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Post-NFP Short Opportunity in AUD/USD

Post-NFP Short Opportunity in AUD/USD

Todd Gordon, Technical Strategist

Talking Points:

  • Friday's Critical US NFP Report
  • Confirmation from the Gold Futures Market
  • Exact Parameters for Shorting AUD/USD

Tomorrow’s November non-farm payroll (NFP) report is extremely important, as it is the last job report before the December 18 decision by the Federal Reserve to either maintain or reduce the level of monthly bond purchases.

This report will be particularly important for inflation-sensitive markets like commodities and commodity currencies. If the number is anywhere above 200k, the expectation is that the Fed will reduce the level of monthly bond purchases, which would also reduce inflationary pressures. That would be decidedly bullish for the US dollar (USD) and decidedly bearish for commodities.

Today’s trade involves AUDUSD and is supported by intermarket analysis of gold futures. The Aussie is one of the headline commodity currencies, while gold is one of the most important and inflation-sensitive commodity markets.

As you look at the chart below, you will notice these two assets have been practically joined at the hip since October. An economic slowdown in China is partly to blame for the matching declines, but in my opinion, it’s all about Fed policy from here on out.

Guest Commentary: AUD/USD and Gold Moving in Lockstep

Post-NFP_Short_Opportunity_in_AUDUSD_body_GuestCommentary_ToddGordon_December5A_1.png, Post-NFP Short Opportunity in AUD/USD

Turning to technical analysis of the daily gold futures chart, I see an important and extremely common price dynamic at work with the key Fibonacci retracement levels. You will notice the orange 78.6% retracement level at $1233, which did its best to contain the selling, but this level ultimately gave way.

In my experience, once the 78.6% retracement level is defeated, the 100% retracement (which, for gold, is at $1178) will be a short-term stopping point, but the 127.2% retracement (at $1109, in this case) will be the final stopping point.

Guest Commentary: Critical Fibonacci Pattern on Gold Futures Chart

Post-NFP_Short_Opportunity_in_AUDUSD_body_GuestCommentary_ToddGordon_December5A_2.png, Post-NFP Short Opportunity in AUD/USD

Heading into tomorrow’s NFP report, we should be prepared to see a strong jobs number propel gold futures towards $1178, and ultimately down to $1109 in the coming days and weeks. As we now know, gold and AUDUSD are tightly correlated, and falling gold prices will certainly bring sellers into AUDUSD. Today’s strategy is to sell AUDUSD at the highlighted entry points on the 60-minute chart, shown below.

Guest Commentary: Post-NFP Short Opportunity in AUD/USD

Post-NFP_Short_Opportunity_in_AUDUSD_body_GuestCommentary_ToddGordon_December5A_3.png, Post-NFP Short Opportunity in AUD/USD

This short AUDUSD trade would be taken using the following parameters:

Trade: Short half of a position at 0.9065, and short another half position at 0.9105

Stop: Place a stop loss at 0.91500

Take Profit: Take half profits at 0.8950 and let the remaining position run until 0.8856

More AUD/USD Analysis: Please watch this video detailing the Elliott Wave analysis used to determine these trade parameters.

By Todd Gordon, founder, TradingAnalysis.com

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