Australia's jobs next: Impact on the AUD/USD

The Australian Dollar continues to be the darling of the FX space in 2014, emboldened by a conglomerate of drivers; from carry trade plays, early expectations of rate hikes by the RBA (plus softer rhetoric towards AUD), assets returning into EMs (AUD proxy), and last but not least, the phenomenal performance AUD usually has during April (seasonals). 

Immersing into the technicals, price action continues to scream we are in a 'buy on dips' type of market, with the latest breakout last Tuesday taking the price even beyond the topside of its daily channel, creating a clearance thrust allowing for a more parabolic trend. Amid such bullish indications, it seems safe to assume that looking to sell AUD at current levels (unless a more long term player) looks like a strategy still carrying high risks. 

In these type of bullish markets, remember that many inexperienced players usually get caught selling based on overbought conditions, only to see, more often than not, the signal being ignored, with the march higher resuming until a technical cycle is complete or a fundamental trigger changes market perception towards holding AUD longs. 

Could the AUD/USD soon be faced by one of the two scenarios mentioned above? Addressing the firs technical question, one validated pattern that garnered plenty of attention in recent weeks was the break of an inverted H&S pattern late March. Based on the initial target, since the distance between the head and the neckline is just over 400 pips, we will assume that price still has room to rise for a potential target of 0.95. The mere fact that no technical evidence has been given to invalidate the uptrend, is enough to remain technically bullish.

Looking at the fundamentals, today's Australian jobs data (due at 1.30GMT) could be one catalyst that distorts the uptrend. However, it is important not to forget that since the trend and sentiment are clearly bullish, it would take a significantly lower-than-expected reading to make some damage to AUD longs, as otherwise, on a slight negative deviation, risk remains high that Asia will continue to buy the dips.

For this month, expectations are low with the jobless rate expected at 6.1%, up 0.1% from February, with only between 2.5-5k jobs created. Possible scenarios can be found below:

Employment change well above 5k: AUD/USD is likely to target 0.9430/40, a level that converges with Nov 20, 2013 high, with further rises likely to encounter big clusters of selling at 0.95.

Employment change just above 5k: AUD/USD will most likely see a rise back above 0.94, with further upside risk towards 0.9430/40 not being ruled out given that sentiment is on the Aussie side.

Employment change between 2.5 and 5k: AUD/USD will probably have a tepid reaction, with any shallow downmove most likely to find grateful buyers. 0.94 could be retested, but no much follow through expected ahead of European trading.

Employment change marginally negative: AUD/USD could see a slide to test levels between 0.9350 and 0.9330/40 (retest of the 38.2 fib retrac from the nov-jan decline).

Employment change well below 0: AUD/USD will see an abrupt fall towards 0.9330/40 and probably see follow through for a retest of the 0.93 broken-resistance-turned-support.