To Short or Not to Short the Aussie – June 4, 2010

To short or not to short the Aussie? That is the question. Well, I would tell you my take on it in a bit but first, let me present to you the updated chart of the AUDUSD pair using its daily timeframe. Like what I have mentioned in my previous blog about it, the pair has recovered a bit after reaching a low of 0.80669 last May 25. Following its break down from a double top, the pair then turned around when it broke out to the upside of a bearish pennant or symmetrical triangle formation. The Aussie, however, appears to be losing its momentum against the greenback already. Not only that it failed to move above the psychological resistance and the 38.2% Fibonacci retracement level of the most recent down wave, it is now also forming a rising wedge, which we know is a bearish pattern. Moreover, the stochastics are also near the overbought territory, indicating a possible weakness in prices soon. A breakdown from the rising wedge could send the AUD/USD back at 0.8100 or at its 2010 low. On the sunny side, it could at least aim for 0.8700 if it is able to clear the 38.2% Fib and the double top’s former neckline.

On deck today at 12:30 pm GMT is the US’s non-farm payrolls (NFP) report. US firms are seen to have added 521,000 more workers in May, surpassing the 290,000 number registered in April. Now, the market is already anticipating some strong figures as evidenced by the gains in today’s US futures. Though, the ADP employment change report, which is usually used as an early indicator of the US’s actual numbers, tells a different story. Based on the ADP’s estimate, US firms added 55,000 jobs in May. This, however, is below the 68,000 consensus. The ADP gauge may not be always accurate but a weaker than expected payrolls report today could disappoint many which in turn could lead to a sell-off in the non-dollar currencies like the Aussie.

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