Central bank events and inflation data updates were the preferred catalysts this week, prompting our strategists to focus on the NZD and USD.
Of the four scenario/price outlook discussions this week, It can be said that both discussions witnessed the raising of fundamental and technical arguments. To become a potential candidate for a risk management position. Check out our review of this discussion to see what happened!
Watchlists are discussions of price predictions and strategies backed by fundamental and technical analysis, and are a crucial step towards creating High quality business idea estimate Before working on a risk management and trading plan.
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GBP/NZD currency pair 24 hours Chart by TradingView
First, let’s talk about the Reserve Bank of New Zealand’s recent monetary policy announcement. We focused on this announcement, We expect the Reserve Bank of New Zealand to keep things fairly stable. – Fixing interest rates, etc. Why? Well, the economy was doing well, even though businesses were feeling a bit cramped.
We came up with two possible scenarios:
1. The “expected” or “dovish” scenario: We thought GBP/NZD might be the better choice here. The UK has been showing some impressive economic numbers and we had a good feeling about the upcoming GDP report.
2. “Falcon Surprise” scenario: For this curveball, we were watching the NZD/CHF pair. The Swiss National Bank had just cut interest rates, so we figured the NZD might have a chance to shine.
So what did we get? The Reserve Bank of New Zealand delivered a “dovish hold.” It kept interest rates at 5.50%, but began singing a more subdued tune about slowing inflation and an improving labor market.
The market reaction was swift. The New Zealand dollar fell, and GBP/NZD surged, breaking its week-high of 2.0960 faster than you can say “fish and chips.”
But here’s where it gets interesting – the Bank of England surprised us with some hawkish rhetoric, including their chief economist, Hugh Bell, who basically suggested that we shouldn’t get too excited about cutting interest rates in August just yet.
So, how was our discussion? In our view, this discussion was “most likely” supportive of a net positive outcome. Our long GBP/NZD bias was smoother than we had hoped thanks to how the catalysts and outcomes from both the UK and New Zealand played out, and momentum carried the pair up another 1.15% after the event candle.
Even traders who hit the snooze button and joined the momentum late may have ended up making some decent gains without having to complicate a trade management plan or need for active execution.
AUD/USD currency pair 24 hours Chart by TradingView
Our strategists on Wednesday focused on the highly anticipated US CPI update and its impact on the US Dollar.
First, let’s talk about the US CPI update for June. We had our eyes on this one, expecting it to show a potential slowdown in consumer prices. The market was playing hot and cold with its forecasts – thinking the annual CPI could fall from 3.3% to 3.1%, but the monthly rate could tick up slightly from 0.0% to 0.1%. Meanwhile, the core CPI was expected to remain flat, stubbornly high.
As usual, we have prepared two possible scenarios for you to watch:
1. “Quiet as a Cucumber” Scenario: If the CPI comes in as expected or lower, we may conclude that the Fed may start targeting interest rate cuts. This could send the USD sellers into a frenzy. We have our eyes on the AUD/USD for this particular scenario given the currency pair’s bullish momentum and the recent resilience of the Australian dollar following some strong CPI data in Australia.
2. “Difficult Situation” Scenario: If US inflation growth decides to play hardball and delivers higher-than-expected results, we might think the Fed could keep its rate cut dreams alive. This could be the time for USD bulls to shine. We’ve been watching USD/CAD closely given the BoC’s recent dovish turn and the tempting descending triangle pattern that could attract some technical sellers on a bearish breakout.
So what did we get? Well, Thursday came, and the US Consumer Price Index (CPI) decided to throw us a curveball of a different kind. Consumer prices unexpectedly fell in June, falling 0.1% on a monthly basis. This was the first decline since the start of the pandemic, and a far cry from the 0.1% increase expected. Even when we strip out the volatile elements, the core CPI came in at 0.1%, failing to hold up to the 0.2% increase in May.
The market reaction was swift. The US dollar fell against major currencies faster than you can say “rate cut,” as the odds of a Fed rate cut in September rose to 84.6% from 70%. But here’s where it gets interesting — the US dollar’s fall was short-lived. Perhaps the weakness in US stocks sparked some safe-haven behavior, or perhaps some traders decided to take profits and run.
Our long bias on AUD/USD has been triggered, both fundamentally and technically. We have identified the R1 Pivot resistance level at 0.6789 as a potential target, which has been tested faster than a kangaroo on a pogo stick, right inside the hourly event candle.
So, how did our discussion go? In our opinion, this strategy was “neutral to bearish” and supported a net positive outcome. The market moved up as we expected, in line with our fundamental and technical criteria. But it was like trying to catch a bright star – this initial move was too fast for most people to act on.
The deciding factor here was the trade management plan. Traders who held their nerve and waited for a pullback to 0.6760 before jumping on the AUD train likely made some decent gains. But for those who jumped right after the news? Well, they probably had to endure a pullback and a rally before they could break even or end up losing a bit.
Ultimately, this forex strategy shows that sometimes, even when you expect the market direction to be right, timing is everything. It’s not just about being right, it’s about being right at the right time – and having a solid trade management plan to back you up!
This content is for informational purposes only and does not constitute investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to ensure you understand the risks involved.
