In a mostly quiet volatility week, our strategy discussions arguably went well, including strong bullish moves in USD/JPY and GBP/NZD. Let’s do a quick review and see how the strategies played out!
USD/JPY: Monday – Aug. 7, 2023
On Monday, our strategists pulled up on USD/JPY, wondering if the fresh decline in the pair was an opportunity for FX trend traders to jump in the longer-term uptrend at better prices.
We discussed how the dip was likely influenced by the weaker-than-expected U.S. jobs update, but there was a possibility that fundie traders may continue to price in intervention-like moves from the Bank of Japan, and the divergence in monetary policy between the BOJ and Fed, which favors the U.S. given the wide interest rate spread.
Our setup was to watch out for support / bullish reversal patterns to emerge after the pair was already testing the Fibonacci retracement area on the pullback lower.
It looks like the 38% Fib pullback was enough to draw in buyers, where the pair spent just a few hours before forex traders began scooping up the pair during the Tuesday Asia session.
And it was a steady climb higher from there, despite a stronger-than-expected Japanese PPI update and a mixed but weaker-than-expected CPI update from the U.S., signaling that monetary policy divergence may be the biggest driver for the pair.
For those who risk managed long entries around the 38% Fib, you likely saw a positive outcome, while those who were a bit more conservative hoping for a deeper pullback likely missed out on the move higher.
GBP/NZD: Tuesday – Aug. 8, 2023
On Tuesday, GBP/NZD popped up on the radar after a spike higher, and without a major catalyst to attribute it to, we’re guessing that it may have been traders pricing in slower rate expectations for China inflation update and/or broad risk-off sentiment during the Asia session.
Whatever the case may be, we thought that there was a potential for the pair to retrace after finding resistance at the R2 (2.1030), potentially to the Fibonacci / broken resistance area marked on the original chart between 2.0900 – 2.09500
Fundamentally, we thought this was a possibility if China announced more stimulus measures, an event that had odds of occurring if inflation updates signaled economic weakness to the government.
We didn’t get fresh stimulus news from China this week, but the pair did drop back a few times and found support at the technical price area of interest discussed earlier.
Following the formation of support, GBP/NZD turned rangebound before breaking the range early in the Friday session. This correlates with the release of weaker New Zealand Manufacturing sentiment data, and likely helped along higher when the better-than-expected U.K. GDP update brought in Sterling bulls during the London session.
Overall, the strategy discussed was likely effective for bringing a positive outcome, especially for those who took entries on the dip and were able to hold on into the strong Friday rally.
EUR/USD: Wednesday – Aug. 9, 2023
After several days of consolidation and with a major USD event right around the corner, EUR/USD became a topic of discussion as a potential breakout play candidate. Our strategists were eyeing the upcoming U.S. inflation updates as catalysts for volatility, and that the markets would sit and wait until the Thursday release.
After a bounce from descending triangle support, the pair was on its way to test the resistance area once again, and if was able to break the falling ‘highs’ patterns, bears could show up again at the R1 (1.1070) or even R2 (1.1120) shown on the original chart.
Well, the market did break above the descending trendline and sellers did arrive, roughly around 1.1065 to turn the market back lower, correlating with the release of the U.S. CPI report. That report was arguably net bearish from the Greenback, but comments from San Francisco Fed Chief Daly (more work to do to control inflation) were likely the catalyst for USD’s bullish turn during the morning U.S. session.
On Friday, the U.S. producer price index rate of change for July came in above both expectations and the previous read at 0.3%, an outcome that was the likely driver for USD bullishness to push EUR/USD closer to the descending triangle support area.
The market is currently below our discussion price, but the discussed price outlook was likely most effective for those who aligned with the bearish lean and were patient enough to wait for the bounce to run out of steam before risk managing into a short position.
AUD/USD: Thursday – Aug. 10, 2023
On Thursday, our FX strategists took a look at AUD/USD, expecting USD volatility to rise with the upcoming release of the U.S. inflation and consumer sentiment data.
Our top price scenario was to watch out for positive or better-than-expected updates from the U.S. (which would line up with the technical arguments of descending triangle pattern / falling SMAs) and see if that sparks a USD rally to break the descending triangle pattern on AUD/USD.
U.S. CPI came out below forecast but above the previous read at 3.2% y/y, sparking a bearish reaction in USD. But that was short live as USD bulls came into play, possibly on the hawkish comments from San Francisco Fed Chief Daly, discussed in the EUR/USD recap above.
U.S. PPI beat both expectations and the previous month’s read, sparking a bullish USD reaction before U.S. consumer sentiment data hit us with a weak preliminary read for August, bringing news trading bears.
Overall, this discussion is a tough one to judge on due to that wonky CPI read and USD rally, but with the market current trading below the original discussion price and sustaining trade below the support area, this was arguably effective, especially for those who flipped bullish on the Greenback after hawkish Fed comments on Thursday and risk managed into a short position above the triangle before the Friday session.
