This week our currency strategists focused on the U.K. Employment Report (October 2024) and Australia’s Employment Report (October 2024) for potential high-quality setups.
Out of the eight scenario/price outlook discussions this week, two discussions arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay. Check out our review on those discussions to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
If you’d like to follow our “Watchlist” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.
GBP/USD: 1-Hour Forex Chart by TradingView
On Monday, our strategists had their sights set on the U.K. employment data and its potential impact on the British pound. Based on our Event Guide, expectations were for the unemployment rate to hold steady at 4.0%, with average earnings growth slowing to 3.9% from 3.8%. The claimant count was forecast to increase by 30.5K following the previous 27.9K rise. With those expectations in mind, here’s what we were thinking:
The “Sterling Surge” Scenario
If the jobs data came in stronger than expected, particularly showing resilient wage growth, we anticipated this could dampen expectations for aggressive BOE rate cuts. We focused on GBP/CHF for potential long strategies in a risk-on environment, especially given SNB Chairman Schlegel’s recent comments about cutting rates and curbing franc strength. In a risk-off environment, GBP/CAD long made sense given the BOC’s recent dovish shift and trade uncertainty with the upcoming U.S. administration change.
The “Sterling Slump” Scenario
If U.K. employment figures disappointed, showing rising unemployment or cooling wage growth, we thought this could weigh on GBP. We eyed GBP/USD for potential short strategies if risk sentiment turned negative, particularly given the pair’s downtrend and position near key short-term resistance levels. If risk sentiment stayed positive, GBP/AUD shorts looked promising given the RBA’s recent hawkish stance on inflation risks.
What Actually Happened
The U.K. jobs report came in notably bearish relative to expectations:
- Unemployment rate jumped to 4.3% (4.0% forecast; 3.9% previous)
- Regular pay growth (excluding bonuses) eased to 4.8% from 4.9%
- Total payrolled employees fell by 9,000 over the quarter
- Claimant Count increased, with October’s figure at 26.7K (30.5K forecast)
Market Reaction
This outcome fundamentally triggered our GBP bearish bias, and with risk sentiment leaning negative due to geopolitical tensions and China concerns, GBP/USD became our focus.
Looking at the GBP/USD chart, we saw some selling pressure after the jobs release, but it wasn’t until the U.S. session where the pair broke below the S1 Pivot support level, likely helped by hawkish Fed comments from Richmond Fed President Barkin about a resilient U.S. labor market and business sentiment to bring out more Dollar bullishness
The pair found some support near the S2 pivot level (1.2717), but bearish momentum remained strong as BOE Chief Economist Pill’s comments about gradual easing failed to offset the impact of the weak jobs data. By Friday’s close, GBP/USD had reached the S3 pivot point (1.2601), driven by additional weak U.K. economic data updates on the session, including disappointing GDP and production figures.
The Verdict
So, how’d we do? Our fundamental analysis anticipated GBP weakness on disappointing employment data, which played out as expected. Our price behavior to watch before working out a short positive was to see the pair consistently trading below 1.2900, which was the scenario as well as the pair already moved lower from our original discussion price on USD strength.
For traders who entered short positions after the weak jobs data, they could have captured a substantial move lower. Trade management would have been relatively straightforward given the clear downward momentum and technical levels providing guidance.
Overall, we think this discussion “highly likely” supported a net positive outcome as both fundamental and technical triggers aligned well, showing strong bearish momentum and reaching multiple support targets throughout the week.
EUR/AUD: 1-Hour Forex Chart by TradingView
On Wednesday, our forex strategists had their sights set on Australia’s October employment data and its potential impact on the Australian dollar. Based on our Event Guide, expectations were for the economy to add 25.0K jobs (vs. 64.1K previous), with the unemployment rate holding steady at 4.1%. With those expectations in mind, here’s what we were thinking:
The “Aussie Advance” Scenario
If the jobs data came in stronger than expected, we anticipated this could reinforce the RBA’s hawkish stance on keeping rates “sufficiently restrictive.” We focused on AUD/CHF for potential long strategies if risk sentiment was positive, especially given the SNB’s recent dovish stance and rate cut plans. In a risk-off environment, AUD/CAD long was our pair of choice given the BOC’s recent comments about “sticking the landing.”
The “Aussie Avalanche” Scenario
If Australia’s labor market showed significant weakness, we thought this could fuel RBA rate cut expectations. We considered AUD/NZD for potential short strategies if risk sentiment stayed positive, particularly given New Zealand’s recent uptick in inflation expectations and visitor arrivals data. If risk sentiment leaned negative, EUR/AUD long made sense given the ECB’s less dovish stance and improving German economic indicators.
What Actually Happened
The October jobs report showed mixed results but generally disappointed expectations:
- Employment rose by 15.9K jobs (vs. 25.0K expected)
- Full-time employment increased by 9.7K (vs. 15.0K expected)
- Part-time jobs rose by 6.2K (vs. 5.0K expected)
- Unemployment rate remained steady at 4.1% as expected
- Participation rate dipped to 67.1% from 67.2%
- Monthly hours worked increased marginally by 0.1%
Market Reaction
This outcome fundamentally triggered our AUD bearish scenarios, and with risk sentiment turning cautious ahead of key U.S. data, EUR/AUD became our focus.
Looking at the EUR/AUD chart, we can see the pair had been consolidating in a symmetrical triangle pattern before the data release. The weaker jobs data sparked an initial move higher, breaking above the triangle resistance around 1.6250.
The euro’s gains were supported by recent positive German economic data, including better-than-expected wholesale prices and French CPI figures. However, political uncertainty in Germany and dovish ECB commentary (particularly from Vice President de Guindos hinting at further rate cuts) likely capped the upside momentum.
EUR/AUD tested the pivot point level (1.6325) during the European session but struggled to maintain gains above this level. The pair eventually settled back near the triangle breakout area as broad USD strength and fading Fed rate cut expectations influenced cross-rate flows.
The Verdict
So, how’d we do? Our fundamental analysis correctly anticipated potential AUD weakness on disappointing jobs data, which materialized in the actual numbers. Our technical analysis also accurately identified the symmetrical triangle pattern and potential breakout levels.
We think this discussion was “likely” supportive of a net positive outcome as both fundamental and technical triggers aligned well. The weaker Australian jobs data provided the catalyst for the triangle breakout, though the sustainability of the move was affected by broader market themes and mixed euro sentiment.
If traders entered long positions on the triangle breakout and targeted the pivot point level, they could have captured a decent move (max at around 73 pips at intraweek highs). However, proper trade management would have been crucial given the choppy price action and eventual pullback from the pivot resistance at the end of the week.
The key lesson here is that while our analysis caught the right direction, external factors like U.S. data anticipation and evolving ECB policy expectations played significant roles in tempering the follow-through. This highlights the importance of staying aware of broader market themes even when trading specific event reactions!
Source link
