Aussie Looking Bearish Ahead Of Key Employment Report

The Aussie has taken a hammering in recent days, dropping by a whopping 200 pips since trading opened on Monday. Investors have clearly reacted negatively to news domestic Business Confidence levels dropped and the overnight announcement that Westpac Consumer Confidence unexpectedly declining by 4.6%.

Headlines revealing simultaneous dropping of domestic business confidence and consumer confidence levels do not bode well for an economy entering a new period of economic growth, while also under continuous pressure to move away from mining investment and towards domestic consumption. The Reserve Bank of Australia indicated as far back as April that the Australian economy was set to enter a weaker period of economic growth and such economic data is providing validity to those forecasts.

Potential alarm bells within Australia were sent ringing last month when the Australian unemployment rate unexpectedly increased to its highest level in twelve years. The employment report released on Thursday morning has the potential to extend the bearish cloud that has suddenly overshadowed the Aussie in recent days and finally provide the momentum for an Aussie decline that the RBA have been waiting months for.

The markets are considerably on edge ahead of the employment release and investors should be paying close attention towards these worsening Australian economic performances. However at the same time, investors should also be aware that the decline in both business confidence and consumer confidence levels might actually be a chain reaction response to last month’s unexpectedly atrocious employment report.

If the Aussie is going to suffer the significant drop in valuation that Governor Stevens is expecting – and which he has previously warned investors that they were underestimating - a second successive weak employment report should do the trick.

From a technical standpoint on the Daily timeframe, the AUDUSD certainly looks bearish. The past three days of aggressive selling have led to the conclusion of what appeared to be a wedge/triangle pattern, with the overnight 0.9112 low representing the lowest AUDUSD valuation since the end of march. This downside break was particularly important because it allowed the pair to finally move below the psychological 0.9210 support level, which was challenged five times in late May.

If the employment report is reacted to negatively, the overnight low (0.9112) will likely be challenged. From here, the gates for the Aussie to trade under 0.91 should finally open up, and the RBA’s claims of currency overvaluation will finally encounter a drop.


Written by Jameel Ahmad, Chief Market Analyst at FXTM.


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