After a rocky start, our pricing strategy discussions have worked out well, increasing the odds of great trading results during a busy forex calendar! How did you manage to navigate the most important events of the week?
Australian Dollar / Canadian Dollar: Monday – July 10, 2023
Forex AUD/CAD for 2 hours Planned by TV
On Monday we saw a significant drop in the Australian dollar during the Asian session, likely in reaction to slower-than-expected inflation updates out of China. There is an argument that slowing inflation may be a signal of slowing economic conditions in China, one of Australia’s largest trading partners.
We also saw that the market was testing a strong technical setup on AUD/CAD which could attract buyers around the 200 SMMA and the double neckline, but we were leaning more towards a short setup given the reaction of the AUD and the potential to attract buyers from the Canadian dollar ahead of this week’s BOC meeting. .
We thought that if the market makes a sustained break below the technical area discussed above, it could attract enough sellers to take the pair down to 0.8760 or further. Unfortunately for our short bias, this area held as support and eventually attracted buyers.
Risk sentiment turned positive after another bearish sign in the US CPI on Wednesday, prompting traders to cut odds of a Fed rate hike. The Canadian dollar fell strongly as the US CPI came out, and then fell further after the Bank of Canada expected a 25 basis point rate hike, most likely a “buy the rumour, sell the news” scenario. Also, this reaction could be an indication that the BoC’s anti-inflationary rhetoric was likely to be seen as somewhat optimistic in the eyes of many traders.
The AUD/CAD broke the consolidation pattern to the upside on Wednesday, which led to a strong rally in the Friday session. For those who took the long technical arguments discussed, congratulations on a potential big win. And for those who have been bearish with us, good risk management will probably keep losses small.
NZD/CHF: Tuesday – July 11, 2023
Forex NZD/CHF for 2 hours Planned by TV
On Tuesday, we spotted a descending triangle developing on NZD/CHF, which is a strong pattern to watch ahead of the upcoming RBNZ monetary policy statement.
Based on market expectations, the RBNZ was expected to keep the OCR rate at 5.50% given signs of weakness in economic growth and a possible peak in an unprecedented rise in inflation rates.
With this view, we went into the short-term downtrend of the NZD/CHF and thought it could reach the support area of the descending triangle. From there, we thought a bounce was possible under a “buy the rumor, sell the news” scenario after the RBNZ’s monetary policy statement.
Looking back, this scenario seems to have played out closely with NZD/CHF eventually retesting the triangle support area, but not bottoming out until testing the S2 Pivot area. From there, the market came back higher, likely aided by the broad shift in risk sentiment towards the positive after the US inflation updates.
So, playing the discussed strategy gave us both short and long odds, and potentially positive outcomes if the risks are managed well.
EUR/CAD: Wednesday – July 12, 2023
Forex EUR/CAD for 2 hours Planned by TV
With the latest monetary policy statement from the BoC fast approaching, we decided that the upside in EUR/CAD was something to watch. With the potential for volatility increasing in the Canadian dollar, and pricing expectations for a 25bp hike from the BoC, our sights were on a retest of the bullish lows pattern likely to play an upward move if buying support emerges.
Unfortunately for the Canadian dollar bears looking to pull back, the Canadian dollar was quickly sold off ahead of the Bank of Canada statement, linked to the US CPI release. I’m not entirely sure of the connection there, but perhaps due to the geographic and trade closeness of the US and Canada, some traders may have taken the US CPI as a signal of similar inflation developments in Canada.
Whatever the case for the dramatic rally in selling the Canadian dollar, it was enough to not only push EUR/CAD higher, but also to spark a significant momentum move beyond the R3 pivot level.
For those looking for a retreat like us, the action may have been missed. But for those who risked differently, such as an extended market entry approach, you probably did very well this week on EUR/CAD.
USD/JPY: Thursday – July 13, 2023
USD/JPY 30-Minute Forex Planned by TV
On Thursday, we got a look at the strong bearish trend in the USD/JPY pair, mainly driven by the rapid rally in the downtrend of the US dollar. We thought the upcoming US PPI could bring volatility and more USD sellers if it also indicates lower inflation rates.
The technical picture was also bearish, with the market trading below the 100 and 200 SMAs, forming a lower “tops” pattern in the process. We also used a Fibonacci retracement tool to see what areas trend traders might jump in if the pair rebounds during the session.
Our idea was to wait for the PPI report, and if we see more signs of declining inflationary pressures, the downtrend could not only attract technical traders on a bounce, but fundamental sellers as well.
This strategy seems to have good odds of working well as the market popped into a Fibonacci retracement area, and quickly found resistance around the 50% Fibonacci retracement area. This quickly brought the sellers back in control and took the USD/JPY pair down to the 137.25 region before finding buyers during the Friday Asian session.
Congratulations to those who managed to take a risk and turn this strategy into a profitable outcome!
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