The Aussie sell off on Thursday was sparked by the labor market data release. It came to no surprise as Governor Philip Lowe had already commented his concerns of the labor market in his speech on the 18th and in the latest monetary policy meeting minutes.
Technically the Aussie was already at major supply levels and monthly resistance. Price had managed to pierce the topside of weekly triangle. The breakout of this is quite significant but was heavily sold off after the data release. The daily closed below the previous open which technically makes this a false breakout.
The high of the current weekly candle is .77342 which is a weekly pivot level, and has held numerous support and resistance levels since 2003. The weekly/monthly downtrend line has been compromised but price has remained in the current downtrend channel. However on the chart the diagonal support line (DS) that was broken in November 2014 has currently been respected to the pip.
There is also a notable inverse head and shoulders patten on the weekly chart.
The weekly and monthly are still in a clear down trend and this must be assumed until the trend is broken if and when price moves above .78488. We have had a higher high in April 2016 and a higher low in July. Price is currently range bound between .71450 and .77558.
Last weeks candle finished as a dragonfly doji and price action looked quite bullish. This week may end in a gravestone doji which is very clear indecision between buyers and sellers.
If we take a look on the daily chart and add a MACD indicator you will see class A divergence which indicates buyers are becoming less committed at these levels and we are highly likely to see the Aussie sell off to support at .74200. The daily engulfing candle is further confirmation price is likely to continue downward.
Governor Phillip Lowe has concerns with the direction of the labor market. The significance of full time positions being replaced with part time jobs will not stimulate growth. This will create more people with less money in their pocket which means the ability to make purchase of assets and savings will be limited for those people. Furthermore this can lower the standard of living.
Wage price index has been trending down for some time now.
Unemployment has been falling but is this due to the increased part time employment?
The RBA will be looking at CPI data this coming week before the next cash rate meeting. Interests rate are at historic lows and are very low but this may be the “new norm” in these slow global economic conditions. The RBA are very conscious about low rates but have noted its a consequence of what has been happening on a global scale. Low rates mean low returns for savers and many retirees will be feeling this. Lowe also stated he will continue to be guided by current frame work which has worked for over 20 years.
This tells me that rates may continue to fall if needed. With the current labor market and wage growth trends combined with lower CPI figures we may just be in for another cut sooner then we think.
On the news front
October 26 > CPI q/q
October 31 > Mid-Year Economic and Fiscal Outlook
November 1 > Cash Rate, China Manufacturing PMI
AUD/USD support resistance levels
.77710 .77300 .7660
.76180 .75900 .75400 .74600
At this stage price will still be range bound within the triangle but looks more to the downside taking fundamentals into account.