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Bearish AUD/USD Pattern to Gather Pace on Dismal Australia Employment

Bearish AUD/USD Pattern to Gather Pace on Dismal Australia Employment

2015-07-08 21:00:00
David Song, Shuyang Ren,
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- Australia Employment Expected to Hold Flat After Marking the Second-Largest 2015 Advance in May.

- Jobless Rate to Uptick to Annualized 6.1% from 6.0% - The Lowest Reading Since May 2014.

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Trading the News: Australia Employment Change

An uptick in Australia’s jobless rate paired with a flat employment print may spur fresh 2015 lows in AUD/USD as fears of a slower recovery puts increased pressure on the Reserve Bank of Australia (RBA) to further embark on its easing cycle.

What’s Expected:

AUD/USD Australia Employment

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Why Is This Event Important:

Even though the RBA sticks to its current policy in July, a deterioration in the labor market may fuel speculation for a further reduction in the cash rate, and the Australian dollar remains at risk of facing additional headwinds in the second-half of 2015 as Governor Glenn Stevens retains the verbal intervention on the local currency.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (MAY)

0.5%

0.3%

Trade Balance (MAY)

-2225M

-2751M

Westpac Consumer Confidence s.a. (MoM) (JUN)

--

-6.9%

Australian firms may scale back on hiring amid slowing demand from home and abroad, and a dismal employment report may spur fresh yearly lows in the exchange rate as the central bank warns of below-trend growth over the policy horizon.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

AiG Performance of Services (JUN)

--

51.2

Building Approvals (MoM) (MAY)

1.2%

2.4%

Gross Domestic Product s.a. (QoQ) (1Q)

0.7%

0.9%

However, the ongoing expansion in the housing market along with the uptick in service-based activity may generate an unexpected pick up in job growth, and a positive development may heighten the appeal of the aussie as it raises the RBA’s scope to conclude its easing cycle.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: Australia Fails to Add New Jobs/Unemployment Upticks

  • Need red, five-minute candle following the report for a potential short AUD/USD trade.
  • If market reaction favors a short aussie trade, sell AUD/USD with two separate position.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish AUD Trade: Employment Report Exceeds Market Expectations

  • Need green, five-minute candle to consider a long AUD/USD position.
  • Carry out the same setup as the bearish aussie trade, just in the opposite direction.

Read More:

AUDNZD Pullback at Key Inflection Point- Bearish Sub 1.1250

USD/JPY Retail FX Crowd Remains Net-Long Despite Fresh Monthly Lows

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Ongoing string of lower highs & lows raises the risk for a further decline in AUD/USD especially as the RSI pushes into oversold territory.
  • DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long AUD/USD since May 15, with the ratio coming off of extremes to hold at +2.49.
  • Interim Resistance: 0.7570 (50% expansion) to 0.7590 (100% expansion)
  • Interim Support: 0.7240-50 (100% expansion)

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Impact that Australia Employment Change has had on AUD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY 2015

06/11/2015 01:30 GMT

15.0K

42.0K

+56

+49

May 2015Australia Employment Change

AUD/USD Chart

The Australian employment increased 42.0K in May after contracting a revised 13.7K the month prior, while the jobless rate unexpectedly narrowed to an annualized 6.0% to mark the lowest reading since June 2014. Signs of a stronger recovery may push the Reserve Bank of Australia (RBA) to adopt an improved out for the region, and Governor Glenn Stevens may endorse a wait-and-see approach throughout 2015 as the central bank appears to be nearing the end of its easing cycle. The Australian dollar strengthened following the positive release, with AUD/USD surging above the 0.7775 region, but the pair consolidated throughout the rest of the Asian Pacific trade to end the session at 0.7759.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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