This week our currency strategists were focusing on another round of employment situation updates, this time from Australia and the U.K, as potential drivers for short-term opportunities.
Out of the four scenario/price outlook discussions this week, only one discussion arguably saw both fundie & technical arguments triggered to become a potential candidate for a trade & risk management overlay. Check out our review on that discussion to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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EUR/AUD: Wednesday – August 14, 2024
EUR/AUD 1-Hour Forex Chart by TradingView
On Wednesday, our strategists had their sights set on the upcoming Australia Employment report. The analysis in our Event Guide showed that recent survey data was mixed on the jobs sector, leading to markets expecting a slowdown in net job adds and the unemployment rate holding steady at 4.1%
With those expectations, here are a couple of potential scenario what we were watching out for:
The Bullish Aussie Scenario: If the jobs data came in stronger than expected, we figured EUR/AUD might draw in fundamental bears, and if so, we were watching for a break below its head and shoulders neckline. We thought that this scenario could potentially draw in technical sellers and potentially drive a move towards S1 (1.6370) or even S2 (1.6130) if risk-on flows were present in the markets.
The Bearish Aussie Scenario: If the employment figures disappointed or showed mixed results, we thought GBP/AUD might find support at the bottom of the consolidation area. This could be further supported if broad risk sentiment turned soured, or benefitted from any net bullish news from sterling’s heavy weak of economic releases.
Well, Thursday rolled around, and the Australian jobs report decided to throw us an outcome weirder than Australia’s break dancing routine at the Olympics.
- Net job additions came in at a whopping 58.2K (vs. 20.2K expected)
- June’s figures were revised higher from 50.2K to 52.3K
- The participation rate jumped to a record high of 67.10%
- Full-time employment rose by 60.5K, while part-time jobs decreased by 2.3K
This outcome triggered our fundamental argument for a bearish EUR/AUD bias, as the strong underlying job growth outweighed the tick higher in the unemployment rate. The pair popped on the release but immediately swung lower within the first hour, eventually dropping below the 1.6600 neckline support as anticipated.
EUR/AUD continued its descent through the session, finding buyers around the 1.6535 level, which had been a strong support area throughout early August.
While the pair didn’t quite reach our S1 target at 1.6370, the move was in line with our expectations. By the end of the week, EUR/AUD was hovering around the 1.6525 level, well below our discussed neckline support, suggesting that sellers remained in control.
So, how’d our strategy discussion do? Well, it was about as accurate as a kangaroo with a GPS – we got the direction right, but slightly overestimated the magnitude of the move.
Our expected move based on fundamental analysis was spot on as the strong underlying job growth would spark net buying in the Aussie this week. The structural price breakdown we were watching also materialized, with the pair breaking below the crucial 1.6600 support.
Overall, we’d rate this discussion as “highly likely” in supporting a potential positive outcome. For those who shorted when the fundamental and technical arguments were triggered on Thursday, they had a solid chance to see a net positive outcome, depending on the trade plan selected and how it was executed.
The sustained move below 1.6600 provided ample opportunity for traders to capitalize on the breakdown, even if the S1 target wasn’t quite reached. The limited downside to the previous support offered a clear level for risk management.
It’s worth noting that the broader context for the Australian dollar was bullish throughout the week. The Aussie saw consistent gains against most major currencies, supported by a mix of domestic data, global risk sentiment, and hawkish comments from RBA Governor Bullock. All put together, this underlying strength and event outcomes likely contributed to the sustained pressure on EUR/AUD.
In hindsight, traders who combined our analysis with a broader view of AUD strength, was entering a position with a high probability of success, which is the goal of this content series: finding high quality scenarios with strong probabilities of success for newbies to overlay their own risk and trade management practices on that makes sense for their trading situation.