AUD/USD traders eye employment data, crude oil bears return: Asian Open

Market Summary:

• Some measures of US price pressures continued to ease with producer prices softening alongside consumer prices this week. Core PPI was flat at 0% m/m in October and last month’s figure was downgraded to 0.2% from 0.3%.
• However, core retail sales rose 0.1% m/m (-0.2% expected) and last month’s figure was upgraded to 0.8% m/m from 0.6%. So whilst it is encouraging to see inflation measures ease faster than expected, consumers continue to defy higher rates and feed back into the ‘higher for longer’ Fed narrative.
• UK inflation softened to a 2-year low, which bought forward bets for the BOE’s first cut
• A larger-than-expected rise in crude inventories saw oil prices fall on Wednesday, despite better-than-expected data form China (barring property investment). Although Beijing vowed to inject ¥1 trillion yuan
• Australian wages grew at their fastest pace on record at 0.3% q/q in Q3, although as this came in as expected and likely driven by temporary factors, the Australian dollar failed to hold onto gains above 0.6522 resistance and formed an indecision candle.
• U.S. President Joe Biden met Chinese leader Xi Jinping had their first face-to-face meeting in a year on Wednesday to discuss military conflicts and artificial intelligence. Xi called the meeting the most “important bilateral relationship in the world”.
• Wall Street rose for a fourth day but the gains were minor compared to the post-CPI rally, suggesting the move higher is running out of steam.

Events in focus (AEDT):

The Australian employment report is the main event in today’s Asian session. Whilst yesterday’s strong wages print was expected and assumed to be propped up by temporary factors, it may carry more weight if coupled with a strong set of employment figures today. The consensus estimate is for 20k jobs to be added, although it may need to deliver a punchy number to claw back the -39k full-time jobs lots in September. And whilst the unemployment rate fell to 3.6%, it was because the participation rate fell at its fastest pace since September 2021. Ultimately, traders want to see if today’s employment figure will reveal whether the RBA are more or less likely to hike, following this months hike and warnings that inflation may be slower to return to their target.

• 10:45 – Japan’s machinery orders, trade balance, foreign investment in bonds/stocks
• 11:00 – Australian CPI expectations (Westpac-Melbourne Institute)
• 11:30 – Australian employment report
• 12:30 – China’s house prices
• 15:30 – Japan’s tertiary industry activity index
• 22:00 – Fed Cook speaks
• 00:30 – US jobless claims, Philadelphia Fed manufacturing
• 01:15 – US industrial production, capacity utilisation

ASX 200 at a glance:

• The ASX 200 delivered its best performing day in four months on Wednesday
• It also reached the 7100 upside target
• However, with SPI futures flat and bullish volatility for Wall Street receding, gains may be limited today unless the Australian employment report delivers a surprise

WTI crude oil technical analysis (daily chart):

As noted in the weekly COT report, large speculators and managed funds have continued to increase their short exposure to WTI crude oil, and that is being reflected in price action. Despite sentiment still calling for it to be higher. Regular readers will note that my $80 and $75 bearish targets were achieved and I now have $70 back within my sights.

I had been deliberating a potential swing higher around $80 or $83, and must confess that I thought the single bearish hammer below $80 on Tuesday was ‘too soon’ to jump in. Yet ow prices are trying to get away without me. Therefore, I’ consider fading into moves back towards the 200-day average with a stop somewhere above $80 for an anticipated break beneath the cycle lows towards $70.

AUD/USD technical analysis (4-hour chart):

Whilst the Australian dollar hit a 3-month high during Wednesday’s US session, it failed to hold on to the day’s gains to close flat and just beneath the breakout level of 0.6522 – making it a level to watch today. And as AUD/USD posted it’s strongest single-day rally this year on Tuesday, it may require a particularly punch set of numbers to see it break and hold above yesterday’s high on renewed RBA -hike bets. Should it break to new highs, the 0.6600 area comes into focus for bulls near the 200-day average.

However, we have a big resistance level to break first. And given the extended move, my bias is for an initial pullback. In which case bulls could seek evidence of a swing low around 0.6470 or 0.6440.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge