FX Play of the Day Recaps: July 3 – 6, 2023

The event calendar was brimming with the FX space and our strategists managed to pull together several powerful ideas this week! Check out our recap and tell us how you did!

Australian Dollar / US Dollar: From Monday to July 3, 2023

To kick off the week, we focused on the upcoming RBA monetary policy decision and AUD/USD. Our event guide for the RBA statement showed that the market expectation is that the RBA will rise by another 25 basis points and may signal further tightening ahead.

Our thinking was that if the RBA did raise interest rates by 25bp, it could attract Australian buyers, potentially turning the higher “lower” highs into support again on AUD/USD.

We also discussed the possibility of the RBA staying at 4.10%, which indicates a potential downside strategy for the Australian dollar in the event. In this scenario, our idea was to observe a “breakout and retest” scenario before AUD/USD might move towards a target area of ​​0.6600 to 0.6620.

The second scenario discussed above appears to be the one that played out with the RBA staying at 4.10%, but with a bit more volatility as AUD/USD rallied to 0.6705 before bearishness took hold and eventually took the market to our target. area of ​​0.6600.

For those who headed to the downside after fixing the price and managing the risk well, the outcome should have been very favorable.

Australian dollar / Japanese yen: Tuesday – July 4, 2023

After the RBA raised interest rates again in Australia, the Australian dollar actually rallied to the downside, likely in reaction to comments that suggested the RBA believed inflation had passed its peak.

This bearish rally quickly found support, attracting enough buyers to not only maintain the key psychological area of ​​96.00, but sparked a reversal to pre-RBA levels!

From there, we have been keeping a close eye on 96.60 for potential resistance, possibly due to the notion that traders with recession expectations (as well as long-term speculation that the BoJ feels uncomfortable with JPY weakness) may sell around this strong resistance area.

We were also aware of the idea that the FOMC minutes could have an impact on AUD/JPY as well as through USD/JPY. The hawkish comments from the meeting minutes could trigger a bullish reaction in the USD/JPY and possibly pull the rest of the yen pairs higher with it.

Targeted resistance at 96.60 held, and with risk sentiment turning big on Wednesday, AUD/JPY began to attract JPY buyers as another round of disappointing global PMI updates pointed to weaker economic conditions.

From there, it was a step up to the downside through the rest of the week, as AUD/JPY finally reached 94.73, nearly 200 pips from the 96.60 resistance area. Congratulations to those who took the risk of managing this pair to the downside this week!

USD/CAD pair: Wednesday – July 5, 2023

On Wednesday, we spotted this bearish trend setup on USD/CAD, with several technical arguments favoring the short-term bears. But it also warrants a potential view as a bullish area to watch given the key catalysts ahead, including our focus trigger and the FOMC meeting minutes.

Volatility rebounded quickly during Wednesday’s session in London, arguably a reaction in broad risk sentiment to another round of business survey updates from Europe and China.

This time it was a service sector sentiment update, and it didn’t look so pretty as companies saw continued pricing pressure against lower demand for services.

The US dollar picked up the bulls (“safe haven” buyers most likely) with the slight shift to risk off sentiment, and there was no help from oil for the Canadian dollar, as oil prices rose in the session. The FOMC meeting minutes did not reveal new insights, so this appears not to be a factor based on price reaction.

Regardless, USD/CAD had enough momentum and volatility to break the downward channel during the session, and didn’t look back until Friday as risk sentiment remained negative thanks to mounting expectations of higher interest rates.

USD/CAD almost settled bearish around the 1.3365 handle on Thursday ahead of the US nonfarm payrolls and Canadian employment reports on Friday.

USD/CHF: Thursday – July 6, 2023

On Thursday, we are checking the bullish channel on USD/CHF as a possible way to play upcoming US employment data (ie, private payrolls, job cuts, initial jobless claims, etc.). The pair was retesting the bottom of the ascending channel, which could attract traders from both sides.

The outlook at the time was that the US Initial Jobless Claims, ADP report, Challenger job cuts, and scheduled JOLTS job applications would likely show a weak US business environment, and if so, USD/CHF could weaken.

But we have decided to stick to the Fed’s hawkish narrative, leaning towards a short-term bullish move that might see USD/CHF rebound from bullish lows to 0.8980-0.9000 region. We will likely consider closing to avoid the volatility of the US Nonfarm Payrolls.

Luck seemed to be upon us as Thursday’s round of US jobs data came out very strong, pushing USD/CHF to the target level of 0.8990 – 0.9000 in just a couple of hours. But it was there that the USD/CHF bulls took the lead, likely due to rising interest rate fears leading to strong safe-haven flows in the session.

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