On Friday, NFP data came way short than expected at 138K against 185K and as a result, the USD depreciated against major currencies. Of note was the break-down against the Aussie which as we have seen has continued to strengthen all throughout the Asian session. Other than the weak employment data which many expect should at least change the Fed’s trajectory of their interest rate hikes, the emerging diplomatic tension against Qatar by other Gulf countries with Saudi Arabia leading the pack has solidified the Aussie. Well, Qatar is the world leading exporter of LNG and as long as conflict continues-and a consequent possibility of a blockade to their main export countries, Australia-with their major LNG projects-should temporarily be the leading supplier of LNG in the world. This possibility is pumping up the Aussie and right now, there is a buy signal as it tests a major resistance trend line against the USD. The possibility of Aussie strengthening further will more so depend on tomorrow’s RBA position of their OCR. Should they remain neutral; the AUD will most likely break and close above the resistance trend line. Another possibility is if the US continues to churn out negative economic data like last week’s NFP. Investors are actually noticing weakness with the USD despite the positive unemployment rate at 4.3%-this is the lowest in 16 years. It should be mentioned that inflation and average hourly earnings are still growing at a slower pace and this has ramifications on other sectors of the economy like consumption and personal expenditure.
Trading the Aussie is simple. In the weekly chart, it is obvious that price action is reversing from significant levels-at 50%-61.8% Fibo levels with stochastics both in the daily and weekly charts signaling buys. Further, looking at the daily chart, we can see that test of resistance trend line as price action test the 0.75 level.
Trade as follows:
Buy Limit: 0.742-0.745
Stop Loss: 0.7350
Take Profit: Target a 1:3 risk reward ration from a point of sale. Ideal take profit should be at 0.775-0.78 levels.
You should watch out for Factory Orders—0.2%e Vs 0.5% and ISM Non-Manufacturing activity-57e Vs 57.5 later in the in the NY session.
Have a good trading day.