The AUD/USD fell in the last week of July, from around 0.9474 to 0.9275. This week so far, price has ranged from the 0.9275 low to 0.9343.
This is an important week for the Aussie in terms of fundamental risks, so the consolidation reflects indecision ahead of these factors. Right in front of us, at the start of the 8/7 Asian session, we will get Australian jobs data for July, the key one being the employment change reading.
(source: forexfactory.com, click to enlarge)
Earlier this week, the Reserve Bank of Australia essentially said that it will remain in the wait-and-see mode until it sees persistent labor market improvements. If we get a few months of jobs growth near 20K, the RBA might start considering a rate hike. But all it takes is one disappointing reading to show that jobs data is not consistent.
Looking back at the AUD/USD, we see that that this week’s consolidation stalls a bearish outlook triggered after price fell below the 0.9320-30 area, which was a common support throughout June and July. You will see in the daily chart that this is the first sign of price topping during the 2014 uptrend.
(click to enlarge)
Here are a few scenarios that might arise from the 4H chart:
1) Data is in-line with expectation: A reading around 13.5K would not be anything to write home about, but it will at least be expected and at still an improvement. If this type of reading is coupled with the AUD/USD rallying toward the 0.94 area, looks for resistance and sellers to keep AUD/USD neutral-bearish in the medium-term. Notice the common resistance around 0.94, as well as the 61.8% retracement at 0.9398. To the downside, there is risk back towards this week’s low of 0.9275, but if that breaks, we are looking at the 0.92-0.9210 support area.
2) Data clearly beats forecast ie. 16K+: A reading that is actually stronger than June’s 15.9K reading should give the AUD/USD a boost. In this scenario, if price has not done so yet, it should push toward the 0.94 area. It might not be as prudent to for sellers to short against a strong AUS jobs data, but the fact remains that consistent data is needed before the prospect of a rate hike will enter the picture. Thus, it might still be difficult for the pair to rally back to the 0.9474 high on simply a strong jobs data. However, let’s say traders fade a rally that approaches 0.94, but then find support around the 0.9340-50 area, then, the bullish outlook improves. Otherwise, the bearish-neutral mode would still be in play for the medium-term.
3) Data Misses Forecast: ie. Below 10K: Data that is under 10K will likely strike traders as inconsistent. A negative reading would be even more reason for the RBA to hold rates. Again, it will take a few months of strong jobs data to build the case for consistency, while one poor jobs reading can indicate inconsistency. Therefore, I believe AUD/USD has more a chance to dip on bad news than rally on good news. Poor data should put pressure on the 0.9275 low on the week. Then if the reading is negative, the 0.92 level would be very much in sight. Otherwise, we can expect some choppier action but still with downside risk toward 0.92.
The daily chart shows the importance of 0.92, which was support from May. A break below it would shift the market from a neutral to bearish market.
(click to enlarge)
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