NFP Reaction: The AUD/USD fell last week after the US NFP beat forecasts (295K vs. 240K). The Unemployment rate also fell faster than expected. (5.5% vs. forecast of 5.6%). However, the story is the same regarding the subdued wage growth (0.1% average hourly earnings growth), and the historically low participation rate (62.8%). Still the USD gained across the board, and dragged the AUD/USD below a common support around 0.7750.
Reviving Bearish Technicals: In the 4H chart, we should note that the rally in February shifted AUD/USD away from the bearish momentum as the 4H RSI pushed above 60. Also, price pushed above the 100-, and 50-period SMAs, which killed the bearish bias, but bears hung on, respecting the 200-period SMA. Now price has fallen back below these SMAs, and the 4H RSI has tagged 30. The bearish technical conditions are back.
Channel Support: As we start this week, AUD/USD slid a little further but found support at 0.7685. The market is respect a projected channel support and the slightly oversold condition based on the RSI. There could be a short-term rebound. Should we sell into this?
I believe so.
If price approaches the 0.78 area, we should anticipate sellers. The 0.78-0.7820 area involves the cluster of 200-, 100-, and 50-period SMAs as well as the falling channel resistance. There are also some common resistance around 0.7850.
A Sample Trade Assessment:
Let’s say a seller enters at 0.7805 and puts a stop above 0.7850, say, 0.7865. (60-pip risk at stop-loss). Now, the bearish target would be 0.7685 and 0.7650. The 0.7685 target gives this trade a potential reward of 120 pips. This would provide a reward to risk of 2:1.
Other, than R:R, we have to assess the likelihood of a bearish continuation. When we look at the daily chart, we can see that the prevailing trend is indeed bearish, and going with the prevailing trend should give us at least a 50/50 chance of continuing.
While no trade is sure-fire, selling AUD/USD on a rally to 0.78 looks at least satisfactory in terms of both reward to risk and likelihood.
Conservative vs. Aggressive Outlook: Note that the trade assessment is conservative because we are not even considering the 0.7626 low on the year, with risk of extending lower towards 0.76.
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