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Summary: AUDUSD bulls gained strong traction on Thursday, ending a four-day losing streak. Upbeat Australian jobs data provided good momentum amid a modest decline in the U.S. dollar.

Fundamentals

Australia's June employment data indicated a continuing tight labor market. Employment rose by 32,600 in June, significantly exceeding the expected 15,000. The employment-to-population ratio reached a historic high. Monthly hours worked surpassed employment growth, suggesting longer working hours are meeting labor demands.

Out of the 32,600 employment gains, an increase of 39,300 in full-time positions was offset by a decrease of 6,700 in part-time positions. The unemployment rate remained steady at 3.5%, below the expected 3.6%.

The labor force participation rate edged down slightly from 66.9% to 66.8%. Monthly hours worked grew by 0.3% month-on-month, faster than the 0.2% increase in employment growth.

Bjorn Jarvis, head of Labor Statistics at the ABS, stated, "The rise in employment in June saw the employment-to-population ratio remain at a record high of 64.5%, reflecting a tight labor market in which employment has recently increased in line with population growth."

He further emphasized that the current labor market is stronger than before the pandemic, noting, "In addition to there being over a million more employed people than before the pandemic, a much higher share of the population is employed. In June 2023, 64.5% of people 15 years or older were employed, an increase of 2.1 percentage points since March 2020."

Jarvis also highlighted the sustained demand for labor, stating, "The strength in hours worked since late 2022, relative to employment growth, shows the demand for labor is continuing to be met, to some extent, by people working more hours."

In terms of the market, the Australian June labor report provides another robust and comprehensive view of the labor market. The current outlook aligns with our view, given the recent elasticity in labor demand and strong growth in labor supply, with the unemployment rate expected to reach only 4.0% by the end of this year.

Despite strong employment growth in June, we maintain our belief that the official cash rate (OCR) from the Reserve Bank of Australia has peaked at 4.1%. While the labor market remains tight, early signs of easing have emerged. The underemployment rate increased by 0.6 percentage points, and the proportion of businesses citing labor as a constraint on output slightly declined from 86.5% to 82.8%, according to NAB's Q2 Business Survey. Overall, today's employment data is in line with expectations, confirming our view that the peak of the Reserve Bank of Australia's interest rates will remain unchanged.

Technical Analysis

The AUDUSD encountered aggressive buying interest on Thursday and maintained strong intraday gains during the early European session. The spot price is currently trading around the 0.6825-0.6830 range, only a few points lower than last week's peak. It appears that the four-day consecutive downtrend has come to an end, which in turn has hindered aggressive bearish bets on the asset, at least for now.

Furthermore, the asset's recent failure to hold above the 0.6900 level has formed a bearish double-top pattern in the daily chart, cautioning bulls to act prudently before preparing for any further uptrend. Nevertheless, the current spot price seems to have halted the recent correction from a one-month high, which is a bullish signal.

However, the Average Directional Index (ADX) appears disinterested in the bullish efforts and remains below the 25 threshold. Similarly, the Relative Strength Index (RSI) is still above the midline but has failed to establish higher highs. More importantly, the stochastic oscillator is slightly declining, preparing to test the support level set by the moving average. The outcome of the tug-of-war between bulls and bears may provide a strong signal for the next movement in the AUDUSD.

In conclusion, even the previous long position at 0.6730 (which was mentioned in my last article) was not triggered and the bulls went straight up, the layout aligns with our strategy. Although the current momentum does not support an uptrend, the ascending structure seems to have initiated ahead of schedule. As long as the previous low point is not breached again, the uptrend is likely to continue. In terms of trading strategy, buying the dips should be the main approach.

Trading Recommendations

Trading Direction: Long

Entry Price: 0.6750

Target Price: 0.6975

Stop Loss: 0.6650

Valid Until: 2023-08-03 23:55:00

Support: 0.6751, 0.6722, 0.6694

Resistance: 0.6894, 0.6920, 0.6975