a technical pattern on AUDUSD that suggested .8145 would be a critical near-term pivot level for AUDUSD

Heading into the final trading day of the first full week, it seemed like today’s Non-Farm Payrolls report was the only topic of conversation for forex traders. As it turned out, that report had a little of bit something for everyone. The absolute quantity of jobs created in December was impressive, with headline employment growth rising by 252k, in addition to +50k revision to previous reports. However, the -0.2% reading in average hourly earnings, as well as the negative revision to last month’s earnings, spoke to a low quality of jobs and, most importantly for Fed policy, no inflationary pressure. After an initial spike in the US dollar, traders are now looking at this report as a negative for the greenback.

Yesterday, we focused in on a technical pattern on AUDUSD that suggested .8145 would be a critical near-term pivot level for AUDUSD (see “AUDUSD: Why .8145 is the Most Important Level to Watch” below for more). With today’s decline in average hourly earnings, the pair has now broken above that level, turning the pair’s near-term bias upward.

Now, the pair is pressing against previous resistance at .8215, but with both the MACD and RSI indicators turning higher, AUDUSD could easily clear that hurdle next week. Above there, the Fibonacci retracements of the mid-November to mid-December drop at .8325 (38.2%) and .8500 (61.8%) could come into play.

Finally, traders should note that there is a raft of fundamental data on tap for next week (including US Retail Sales, AU Employment, US PPI, and US CPI) that will heavily influence trade in AUDUSD.

AUDUSD: Why .8145 is the Most Important Level to Watch

The textbook definition of technical analysis is the use of past market data to help determine what future price action will bring. Because markets are driven by mass trader psychology and emotion, the same types of patterns tend to repeat over time. One simple but potentially effective form of technical analysis is the study of fractals, or repeating price action patterns. As we go to press, AUDUSD is tracing out a compressed version of the same pattern as it did two months ago, and this fractal suggests that the pair may turn lower off key resistance at .8145.

At the start of Q4 last year, AUDUSD….

1)      …dropped to a new multi-year low at .8700…

2)      …stabilized for a couple of weeks…

3)      …fell to a new low, characterized by a clear bullish RSI divergence…

4)      …then bounced back to the 61.8% Fibonacci retracement of the recent dip…

5)      …before rolling over for good and falling another 700+ pips

In an uncanny similarity to the Q4 price action, AUDUSD, at the beginning of December…

1)      …dropped to a new multi-year low at .8100…

2)      …stabilized for a couple of weeks…

3)      …fell to a new low, characterized by a clear bullish RSI divergence…

4)      …and has now bounced back to within striking distance of the 61.8% Fibonacci retracement of the recent dip…

Of course, fractals are not infallible, but if AUDUSD continues to follow its pattern, rates may stall out against the 61.8% Fibo at .8145, clearing the way for another leg down to new 6-year lows under .8000. Conversely, a break above the critical .8145 level would suggest a change in the “character” of the downtrend and could provide an early indication of a more substantial bottom (see my colleague Chris Tedder’s note from earlier this week for more on the bullish fundamental case for AUDUSD). Either way, traders should keep a close eye on .8145 ahead of the weekend and early next week.