Bullish euphoria following April’s better-than-expected employment report is still driving markets higher with the S&P 500 Index continuing its ascent into previously uncharted territory beyond the 1,600 level. With no major economic data releases taking place yesterday its clear that investor confidence is thriving from stimulus hopes following last week’s European Central Bank rate cut along with the Fed’s continuation of its monthly bond-repurchases initiative [Download 101 ETF Lessons Every Financial Advisor Should Learn].
Given that the Reserve Bank of Australia cut rates from 3.00% to 2.75% yesterday, our ETF to watch is the CurrencyShares Australian Dollar Trust (FXA, A-) as it will look to hold above a major support level ahead of Australia’s monthly employment report slated to come out this evening. Analysts are expecting for Australia’s unemployment rate to hold at 5.6%, while jobs are expected to increase by 11,000 versus last month’s decrease of 36,100 [see also How To Invest Overseas Without Currency Risk].
Consider FXA’s one-year daily performance chart below. Notice how this ETF has been stuck in a fairly well-defined trading range since it peaked at $106.34 on 9/14/2012; since then, FXA has failed to summit resistance at the $106 level (red line) on three occasions while also managing to rebound off support at the $102 level (blue line) after each failed attempt. Monday’s interest rate cut sank this Aussie dollar fund back to its major support level, setting the scene for a potential rebound or a severe sell-off depending on investors’ reaction to the upcoming employment data [see How To Swing Trade ETFs].
Given that FXA is trading right along a key support level, we advise conservative investors to hold off from establishing either a long or short position until after the fund establishes clear support or breaks below $102 a share following the employment report [see 5 Most Important Chart Patterns For ETF Traders].
Upbeat Aussie employment data can serve as the fundamental catalyst that helps FXA rebound off its current support level; in terms of upside, this ETF has near-term resistance at $104 a share followed by the $106 level. On the other hand, disappointing employment data could spur further profit taking; in terms of downside, a sharp break below $102 a share will likely trigger stop-losses as the next major support level for FXA comes in at around the $100 mark. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing.