audusd risk of a short term corrective rally looms ahead of nfp 1846242017

Later today at 1330 GMT, we will see the release of the most talked about economic data for the month, U.S. nonfarm payrolls for February 2017. This will be the final piece of decision making data for the Fed before it heads into its FOMC meeting on 14/15 March 2017.

Interestingly, the latest Fed Fund futures pricing as of 09 March 2017 from CME FedWatch tool has indicated a probability of 88.6% that the Fed will hike another 25bps on 15 March 2017, a near certainty done deal. Therefore, today’s NFP number may not be a driver for further USD strength at this juncture in the short-term as market expectations have almost fully priced in for a Fed rate hike next Wednesday.

In addition, the ADP job data that was released earlier on Wednesday, 08 March 2017 had surpassed expectation by a wide margin of 57% (298K versus consensus of 190k) which had already triggered a USD rally in the majors upon the release of the ADP job data before ECB “killed it” yesterday (except in JPY and GBP). Thus, today’s NFP numbers need to beat expectations by a significant wider margin of 57% in order to trigger a potential USD strength revival. Therefore, the recent USD strength may see the risk of a further pull-back in the short-term that has already started yesterday.

On Tuesday, 07 March 2017, we had published a short-term technical outlook on the AUD/USD which had already met the downside target/support of 0.7510 (click here for a recap).  Let us now review the latest technical elements of the AUD/USD ahead of NFP.

Short-term technical outlook on AUD/USD

(Click to enlarge chart)

Key technical elements

• Based on Elliot Wave Principal and fractal analysis, the current down move from its high of 0.7740 printed on 23 February 2017 is likely to have completed a 5 wave bearish impulsive down move cycle of an intermediate degree with potential end target set at 0.7510. Therefore, the AUD/USD now faces the risk of a corrective rally to retrace the its recent decline with a potential minimum upside target set at 0.7585 (38.2% Fibonacci retracement of the down move from the 23 Feb 2017 high of 0.7740 to yesterday’s low of 0.7487).
•  The aforementioned 0.7585 potential minimum end target of the corrective rally also confluences with the upper boundary of a minor descending channel in place since 23 February 2017 high.
• The hourly RSI oscillator has traced out a bullish divergence signal and still has room to manoeuvre to the upside before it reaches an extreme overbought level (depicted by the green box).

Key levels (1 to 3 days)

Intermediate support: 0.7510

Pivot (key support): 0.7487

Resistances: 0.7550 & 0.7585

Next support: 0.7450

Conclusion

As long as the 0.7487 short-term pivotal support holds, the AUD/USD is likely to shape a potential mean reversion corrective rally to target the next resistances at 0.7550 and 0.7585 in the short-term (1 to 3 days).

Do note that our medium-term (1 to 3 weeks) technical outlook for the AUD/USD remains bearish as long as the 0.7654 medium-term pivotal resistance is not surpassed, thus we still have a view that any potential rally seen at this juncture is mean reversion in nature rather than the start of a multi-month bullish trend.  Click here for a recap on our latest medium-term technical outlook.

On the other hand, a break below 0.7487 may invalidate the preferred mean reversion rally for a continuation of the down move to test the next support at 0.7450 in the first step.

Charts are from eSignal

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