Originally published by AxiTrader
If the Australian dollar is going to break higher it has built a solid base on which to do it after yesterday's release of September employment again showed the economy is mapping in the direction of the RBA's forecasts not the doomsayers fears.
So this morning the AUD/USD is up 0.45% to 0.7878.
It didn't quite make the 79 cents level I tweeted that I thought it might yesterday as the fall in iron ore and metals prices together with the solid but not expectation-beating Chinese data dump yesterday constrained the upside. But it has been a solid 24 hours for the Aussie nonetheless.
A large part of that is because after the shock of the 0.6% fall in August retail sales - released earlier this month - it was up to the NAB business survey, consumer sentiment, and employment to disprove the narrative that Australian consumer are retrenching. We are now 3 for three for the alternative hypothesis that the economy is on a solid footing after yesterday's employment beat expectations with a 19,800 increase and an unemployment rate of 5.5%.
If I just use my crude and very long-term directional indicator of Australia's unemployment rate (inverted) and the Australian dollar then prices above 80 cents are consistent with current settings.
AUDUSD v Australian unemployment rate (inverted)
Of course no currency - especially the Aussie dollar is a one-factor model. But this relationship simply highlights that the unemployment rate is often a neat shortcut for where the economy sits.
And to that end the outlook for the US dollar, investor sentiment, bond spreads, Chinese and global growth - among other indicators - are important for the Aussie dollar's outlook.
A quick look at that list - save the Aussie-US 2 year spread - are very supportive for the Aussie.
For the moment though it remains the case that the AUD/USD needs to break up and through 79 cents, 0.7930 to kick higher. But as you can see in the daily chart that break has increased in possibility given the base building and then rally of the past 3 days.
I could build a case that what you are looking at is a reverse head and shoulder in the AUD/USD which would mean a break of 79 cents would be very bullish and suggest a run toward 0.8050 if it breaks.
The 4-hour charts suggest 0.7897 remains the key as well. A break would suggest a move toward 0.7959 while there is a little support on a trendline at 0.7855/60 and then of course the 0.7840/50, which was supported yesterday.
Have a great day's trading.