Talking Points:

- AUD/USD Snaps Bearish Series Ahead of Australia Employment Report Despite Cautious RBA.

- EUR/USD to Pare Losses on Lackluster U.S. Consumer Price Index (CPI).

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DailyFX TableAUD/USD

AUD/USD snaps the series of lower highs & lows from earlier this week and the pair may continue to gain ground over the next 24-hours of trade as Australia Employment is projected to increase another 20.0K in August.

A further improvement in labor market dynamics may encourage the Reserve Bank of Australia (RBA) to adopt an improved outlook for the region, but the central bank appears to be in no rush to lift the cash rate off of the record-low as board member Ian Harper strikes a cautious tone and argues ‘the Australian economy is still operating below its potential.’ In turn, a lackluster employment report may trigger a larger pullback in AUD/USD, with the pair at risk of giving back the advance from the August-low (0.7808) as Governor Philip Lowe and Co. appear to be on course to retain the accommodative stance throughout 2017.

AUD/USD Daily Chart

AUD/USD Daily Chart

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  • Broader outlook for AUD/USD remains constructive as both price and the Relative Strength Index (RSI) preserve the bullish trends from earlier this year.
  • However, the failed attempt to clear the 0.8150 (100% expansion) hurdle raises the risk for a near-term correction especially as the momentum indicator struggles to push into overbought territory and appears to be deviating with the exchange rate.
  • As a result, AUD/USD may test the Fibonacci overlap around 0.7930 (50% retracement) to 0.7940 (61.8% retracement) for support, which sits just below the 20-Day SMA (0.7961), with the next downside region of interest coming in around 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion).
EUR/USD

EUR/USD struggles to retain the rebound from earlier this week as the U.S. Producer Price Index (PPI) picked up for the second consecutive month in September, but the below-forecast print raises the risk for another batch of mixed data prints as many Fed officials ‘saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.

Even though the U.S. Consumer Price Index (CPI) is projected to uptick to an annualized 1.8% in August, a decline in the core rate of inflation may ultimately spark a bearish reaction in the greenback as it dampens the Federal Open Market Committee’s (FOMC) scope to deliver three rate-hikes in 2017. As a result, Chair Janet Yellen and Co. may outline a more shallow path for the Fed Funds rate at the September 20 interest rate decision, and the central bank may merely attempt to buy more time as price growth continues to run below the 2% target.

EUR/USD Daily Chart

USD/CAD Daily Chart

Chart - Created Using Trading View

  • Lack of momentum to test the 1.2130 (50% retracement) hurdle may spur a near-term pullback in EUR/USD, with a break of the September-low (1.1861) raising the risk for a move back towards the 1.1770 (100% expansion) hurdle; next region of interest coming in around 1.1670 (50% retracement), which lines up with the August-low (1.1662).
  • Keep in mind the broader outlook remains constructive as the euro-dollar exchange rate preserves the upward trend from earlier this year, but the Relative Strength Index (RSI) highlights the risk for a larger correction in EUR/USD as the momentum indicator threatens the bullish formation carried over from December.

Retail Sentiment

Retail Sentiment

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  • Retail trader data shows 36.2% of traders are net-long AUD/USD with the ratio of traders short to long at 1.76 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.7456; price has moved 7.5% higher since then. The percentage of traders net-long is now its highest since Aug 31 when AUD/USD traded near 0.79388. The number of traders net-long is 18.5% higher than yesterday and 12.7% higher from last week, while the number of traders net-short is 3.5% higher than yesterday and 2.1% lower from last week.
  • Retail trader data shows 36.9% of traders are net-long with the ratio of traders short to long at 1.71 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.08642; price has moved 10.0% higher since then. The number of traders net-long is 8.4% higher than yesterday and 15.9% higher from last week, while the number of traders net-short is 0.4% lower than yesterday and 6.0% lower from last week.
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--- Written by David Song, Currency Analyst

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

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