Premium Forex Watch Recap: August 12 – 14, 2024

This week, our currency strategists focused on another round of labor force updates, this time from Australia and the UK, as potential drivers for near-term opportunities.

Of the four discussions on price scenarios/outlooks this week, only one discussion saw both substantive and technical arguments triggered to become a potential candidate for a trading and risk management overlay. Check out our review of that talk to see what happened!

Watchlists are discussions of price perspective and strategy supported by both fundamental and technical analysis, a crucial step towards creating a high quality discretionary business idea before working on a risk management and trading plan.

If you want to watch “Watch list” choose right when they are published throughout the week that you can subscribe to BabyPips Premium.

EUR/AUD Hourly Forex Chart from TradingView

On Wednesday, our strategists set their sights on the upcoming Australian employment report. Analysis in our Event Guide showed that recent survey data was mixed in the jobs sectorleading markets to expect net job growth to slow and the unemployment rate to hold at 4.1%

With that in mind, here are some potential scenarios we were keeping an eye on:

Bullish Aussie Scenario: If the jobs data came in stronger than we expected, we thought that EUR/AUD could attract fundamental bears, and if so, we expected a break below the neck of the head and shoulders. We thought this scenario could attract technical sellers and lead to a move towards S1 (1.6370) or even S2 (1.6130) if risk flows were present in the markets.

Bearish Aussie scenario: If employment figures disappointed or showed mixed results, we thought GBP/AUD could find support at the bottom of the consolidation zone. This could be further supported if overall risk sentiment worsens or benefits from any net bullish news from the pound’s weak economic output.

Well, Thursday rolled around and the Australian jobs report decided to show us a result that was weirder than Australia’s break dance routine at the Olympics.

The unemployment rate rose to 4.2% (from 4.1%), reaching a two-and-a-half-year high. However, the underlying components painted a much stronger picture:

• Net job additions came in at 58.2K (vs. 20.2K expected)
• The June figures were revised higher from 50.2K to 52.3K
• The participation rate increased to a record level of 67.10%
• Full-time employment rose by 60.5k, while part-time employment fell by 2.3k

This result triggered our fundamental argument for a EUR/AUD erroras strong core job growth outpaced the higher unemployment rate. The pair came up on the release but immediately declined in the first hour, eventually breaking below the 1.6600 neckline support as anticipated.

EUR/AUD continued its decline during the session, finding buyers around the 1.6535 level, which had been a strong support area in early August.

Although the pair missed its S1 target at 1.6370, the move was in line with our expectations. By the end of the week, EUR/AUD hovered around the 1.6525 level, well below the discussed breakout support, suggesting that sellers remained in control.

So how did our strategy discussion go? Well, it was about as accurate as a kangaroo with a GPS – I got the direction right, but slightly overestimated the magnitude of the movement.

Our expected move based on fundamental analysis was correct as strong core jobs growth would trigger net buying in Australia this week. The price structural breakdown we have been eyeing has also materialized, with the pair falling below the crucial 1.6600 support.

In general, we would rate this discussion as “highly likely” to support 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 trading plan selected and how it was executed.

The sustained move below 1.6600 gave traders ample opportunity to capitalize on the breakdown, even if the S1 target was not reached. Limited downside from previous support provided a clear level for risk management.

It’s worth noting that the broader context for the Aussie dollar was bullish throughout the week. The Aussie posted consistent gains against most major currencies, supported by a combination of domestic data, global risk sentiment and dovish comments from RBA Governor Bullock. All together, this underlying strength and the results of the event likely contributed to the sustained pressure on EUR/AUD.

In hindsight, traders who combined our analysis with a broader view of AUD strength were entering a position with a high probability of success, which is the purpose of this content series: Finding high quality scenarios with high probabilities of success for beginners to overlay their own risk and trade management practices on that makes sense for their trading situation.