Contributed By: DailyFx

 The latest unemployment data out of Australia is very interesting to us, as it is not that often that you see Australian data disappoint, and even less often that you see the data disappoint by so much (we realize that there was some silver lining with better employment change numbers but this is not our focus here). Analysts had been looking for a 5.0% unemployment rate on Thursday, but instead, the data series produced a much higher and very concerning 5.4% print. There has been a very strong inverse correlation between the unemployment rate and Australian Dollar (see below; orange line is Aussie and white line is unemployment rate), and this latest jump in the unemployment rate could very well warn of a shift in the trend.

We have warned that we see risks for significant downside in the Australian Dollar over the coming months, with the single currency trading by record highs and looking very stretched on a cyclical basis. All of the fundamental drivers of the Aussie strength look to be approaching exhaustion and we believe that things will not be sustainable from here. RBA monetary policy has been extremely aggressive in the face of a global slowdown to produce attractive yield differentials, while booming commodity prices and a flourishing Chinese economy have also helped to propel the antipodean. However, at this point, we see the RBA starting to slow down with its tightening bias while other central banks play catch up, commodities prices rolling over sharply in favor of a much needed and sizeable corrective pullback (recent actions at the CME to up margin requirements could help fuel the pullback), and the Chinese economy cooling off as the government takes measures to curb growth and fight inflation.

With this in mind, we have gone ahead and established a fresh short Aussie position on Thursday. We have chosen to short the Aussie through the Euro instead of the Dollar as we believe it is a safer play from here and also could offer a more attractive risk/reward play. We are long Eur/Aud at 1.3725, with an open objective and stop in place by 1.3575. The cross sits at 20 year lows and by the bottom of a major range. Monthly studies are severely oversold (very rare) with the RSI by 25 and in desperate need of a healthy bounce. We contend that this latest unemployment data gives us a good excuse to enter the position, and we believe that the cross could very mount a significant rally from here.

Up to this point, the Eur/Aud cross has been somewhat inversely correlated to the Eur/Usd, particularly in periods of Eur/Usd strength. When the Euro rises, markets have taken this as a risk positive and the higher yielding Aussie then rallies even more on the favorable yield differentials. Meanwhile, when the Eur/Usd sells off, the markets have been inclined to take this as a risk negative and in turn look to liquidate the higher yielding Aussie more aggressively.

At this point however, we see the Australian Dollar at risk even in the event of more broad based USD depreciation. The basis for our argument is that with the Australian economic data finally starting to show a dent in its armor, the attractive yield differential in periods of USD weakness will no longer be as attractive, with market participants starting to price in a slowdown in the local economy. We like the idea of playing the short Aussie position through the Euro, as at this point, USD exposure seems a little more risky, and as we have argued above, this cross could very well head higher no matter what the direction of Eur/Usd.

Contributed By: DailyFx

We put Fib levels on a chart so a basic determination can be made as to the point which a currency pair is likely to retrace after a strong move.Take a look at the chart below. A bullish move is shown on the chart so the Fib line would be drawn from the bottom of the move (Swing Low) to the top of the move (Swing High)…the opposite would be true in a move to the downside.

Having done this, the three major Fib levels will be appear on the chart…38.2%, 50.0% and 61.8%. A trader will then wait to see if one of the levels holds…that is, price action stalls at that level. Should one level hold, a long position can be taken back in the direction of the original move with a stop below the lowest wick that penetrated the Fib level that held.

Contributed By: DailyFx

AUD/USD: Clear signs of another short-term top emerging with the market stalling out by fresh post-float record highs at 1.0185 on Friday, and then reversing course on Monday to end a sequence of consecutive daily higher lows. Tuesday’s break back below Monday’s low and bearish close encourages reversal prospects, and we look for an acceleration of declines back towards the 0.9900 area at a minimum over the coming sessions. Back above 1.0185 negates.

Contributed By: DailyFx

EUR/CHF: Despite the latest setbacks, we retain a constructive outlook with the market in the process of carving out a major base. There is some very solid internal range support in the 1.3200’s and we would expect to see any additional declines very well supported ahead of 1.3200. Ultimately, only a close back below 1.3200 would give reason for concern. Look for a break back above 1.3455 over the coming sessions to confirm bias and accelerate gains.

Contributed By: DailyFx

EUR/JPY: The market has done a very good job of holding above the daily Ichimoku cloud to suggest that we could be on the verge of a material shift in the structure in favor of significant upside over the medium and longer-term. Daily studies are however in the process of consolidating, so the preferred strategy is to look to buy into dips rather than on upside breaks. The latest pullback to 112.00 could now present an attractive buy opportunity, with the market seen well supported by the cloud top.

Contributed By: DailyFx

EUR/USD: Wednesday’s break back below 1.3695 is significant, with the market potentially looking to roll over in favor of deeper setbacks. However, as we mentioned in our commentary from the previous day, a close below 1.3695 would ultimately be needed to force a shift in the structure. Until then, the focus remains on the topside. Key levels to watch over the coming session come in by 1.3890 and 1.3670.

Contributed By: DailyFx

GBP/JPY: Although the cross remains locked in a broader downtrend, the latest bounce has been impressive with the market finally breaking above the daily Ichimoku cloud to suggest that we could in fact be on the verge of a major shift in the trend. Look for a daily close above the top of the cloud (113.70) to strengthen reversal prospects and potentially accelerate gains towards next resistance in the 135.00-1.38.00 area.

Contributed By: DailyFx

GBP/USD:At this point, the latest pullback from 1.6300 can only be classed as corrective, with the market seeking out a fresh higher low ahead of the next upside extension beyond 1.6300. There is however scope for additional weakness towards the 50-Day SMA at 1.5775 before bulls look to formally reassert. We will use the 50-Day SMA as our gauge for trend for now, and while the market holds above, the broader outlook is still constructive. A close below the 50-Day SMA will shift bias.

Contributed By: DailyFx

NZD/USD:We are finally starting to see some form of a top, with the multi-month gains stalling out just shy of critical psychological barriers by 0.8000 and reversing course. From here, there is plenty of room for additional weakness and we see scope for additional declines back towards previous resistance now turned support by 0.7650 over the coming sessions. Intraday rallies should be well capped ahead of 0.7900.

Contributed By: DailyFx

USD/CAD: While we retain a medium-term and longer-term bullish outlook, rallies remain well capped for now, with the market once again dropping back to parity. However, despite the weakness, we recommend buying on dips into the major psychological barrier with the market expected to be very well supported by the figure. Ultimately, only a close back below 0.9970 would give reason for concern, while a break and close back above 1.0160 will relieve downside pressures.