Talking Points:
- AUD/USD looks vulnerable if NFPs pull forward Fed bets
- US NFPs in focus ahead as the market remains subdued in anticipation
- US holiday Monday complicating outlook for currencies
The AUD/USD is trading sideways, around 0.7550 at the time of writing, after the pair managed to find support at the 0.75 handle.
Looking ahead, Fed rate hike expectations are at center stage as we approach the August NFPs, with the Aussie looking vulnerable if the report pulls forward rate hike bets.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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August US Non-farm Payrolls hits the wires 12:30 GMT. Expectations are for a 180K jobs increase, down from the 255K prior number.
The NFP report is always in focus, and today’s numbers are no different as Yellen said last week that “the case for an increase in the federal funds rate has strengthened”, which pulled forward Fed rate hike bets and gave the US Dollar a boost.
This makes for a potentially huge event today, with the market looking to confirm or contradict the shift in the projected rates timeline, potentially implying a binary response on a big beat or miss to expectations in the headline figure.
With that said, opportunity might lie in the nuances.
A slight miss to the headline figure, that neither confirms nor contradicts the build-up in Fed bets, might see a knee-jerk US Dollar sell reaction.
If the wage figures on the other hand print better than expected numbers, the market might interpret that as a positive for inflation (which is the “missing piece” for the Fed’s dual mandate) to an overall positive report.
Also worth watching today will be the speech by Fed’s Lacker on interest rates benchmarks in Richmond, who could potentially comment on the latest jobs report. This could see Lacker express his opinion on the market’s re-pricing of Fed rates path following the figures.
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We use volatility measures as a way to better fit our strategy to market conditions. The Australian Dollar is expected to be more volatile than most majors versus its US counterpart based on 1-week implied volatility measures (one Yen more).
With that said, volatility has been subdued lately with 20-day ATR measures sitting at the lowest levels since September 2014.
Further adding to complication is the US holiday Monday, which is notoriously quiet in a historical perspective– potentially implying a burst of volatility on the NFPs, with reduced participation, and follow-through remains in question as the US heads for a long weekend.
The answer to this question will likely depend on the report itself.
AUD/USD 30-Min Chart (With the GSI Indicator): September 2, 2016
(Click to Enlarge)
The AUD/USD is trading below potential short term resistance at 0.7575, with GSI calculating higher percentages of past movement to the upside in the short term.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here.
Given the NFPs volatility the main resistance levels to watch might be 0.7600, 0.7650 and the area above 0.77.
Levels of support may be 0.7500, 0.7460, and 0.7400.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the “Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 51.5% of traders are long the AUD/USD at the time of writing after flipping long recently, offering a short bias on a contrarian basis.
You can find more info about the DailyFX SSI indicator here
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
