Of our four forex strategy discussions this week, three were highly effective with proper risk management as our strategists did a great job navigating around a busy agenda with first-rate events. Jump in to see how it all went down
Forex Week Setup: USD/JPY Consolidation Ahead of FOMC Decision
USD/JPY in forex for 4 hours Planned by TV
On Monday, we spotted a nice consolidation pattern on USD/JPY, the perfect setup for those anticipating a strong directional move in the US on the FOMC’s highly anticipated monetary policy statement. Expectations were that the Fed would halt the rate hike cycle due to the stability of US inflation data
Our expectation was that if the Fed succeeds in expressing its hawkish bias despite the “skip” in rate hikes this month, USD/JPY could gain more pips.
Well, it looks like that’s what we’ve got as the Fed held another rate hike this month, but they also indicated a high potential for more hikes to come. It is also worth noting that no member saw the possibility of a rate cut in 2023.
The USD/JPY pair broke above the triangle pattern referenced in the original discussion, jumping nearly 200 pips before sellers reversed the market, presumably from profit taking. An argument could also be made that anti-dollar players have come into play, focusing on weak US economic signals, including declining US business survey data, lower inflation updates, and increased jobless claims to solidify the idea that the Fed may not need to raise again. other in July.
By Friday, the USD/JPY bulls regained control as the market retested the rising 100 SMA, likely a reaction to the Bank of Japan’s announcement that it will not change its monetary policy, keeping its interest rate target at -0.1. %.
For those of you who have ridden the volatility in this and implemented good risk management practices, you probably did well in this week’s strategy discussion.
USD/CHF: Tuesday – June 13, 2023
USD/CHF for two hours Planned by TV
On Tuesday, we decided to put up another dollar-focused setup, this time on the USD/CHF pair. We also focused the catalyst on the approaching rapid US CPI update, which we thought could affect the speculation/sentiment in the FOMC statement.
The expectation as discussed in our event guide was that the CPI number would come in lower than the rates of change for the month of April, and in this scenario, The US dollar may decline against currencies with relatively hawkish central banks. However, we did not fully account for the FOMC statement as a potential short-term bullish catalyst for the pair.
Well, it appears that those expectations played their part as the headline US CPI figure actually came in below expectations (but didn’t send the pair lower immediately), and the FOMC signaled more rally ahead to send the pair higher during the Wednesday session. .
Traders started to bearish in the pair during the Thursday session, possibly due to the bearish dollar argument discussed in the USD/JPY summary above, as the recent US data points to a possible scenario where the Fed may have reached the peak of its hiking cycle.
It is also possible that the Swiss franc saw a rally in the euro’s strength, which came after very hawkish comments from the European Central Bank (ECB).They noted that a spike in July was “very likely”.).
For those who were able to stick to a wild ride through all the major catalysts, this was a very successful setup if the risks were managed well.
EUR/USD: Wednesday – June 14, 2023
EUR/USD for two hours Planned by TV
On Wednesday, EUR/USD just reached a strong area of interest on the chart, an upward trend line “bottoms” that could be of great interest to both the bulls and the bears. Very interesting indeed because it was probably a huge trigger for either camp depending on the monetary policy data coming out of both the FOMC and the European Central Bank.
As we discussed above, the FOMC gave us a very expected “pause optimistic” scenario, while the ECB hiked interest rates by 25 basis points as expected.
Our main thoughts prior to the events were that if the Fed pauses rate hikes and if the European Central Bank raises interest rates as expected in the markets, EUR/USD could regain its gains for the week.
Well, that’s pretty much what happened, with the added help of the ECB’s rhetoric that a July rate hike is “highly likely”. EUR/USD surged like a rocket over 100 pips in the ECB event, testing the small psychological area at 1.0950 before losing momentum.
This was another setup in line with our strategy discussion and, with proper risk management, had the potential to be a profitable setup.
EUR/NZD: Thursday – June 15, 2023
Forex trading on EUR/NZD for 2 hours Planned by TV
In our last strategy discussion this week, we focused on the ECB’s monetary policy statement, as it was likely to cause a stir in the Euro with expectations of a future rate hike.
However, this time we thought the event might send the EUR higher during the release, giving bearish traders on EUR/NZD an opportunity to play the long-term trend lower on the 1-hour time frame.
We were leaning into this camp not only based on our outlook for the EUR discussed in the ECB event guide, but also on the possibility of broad market sentiment shifting towards the idea of the Fed approaching the end of the rate cycle.
As discussed in our other summaries, the euro rallied after the ECB’s rally and signaled more gains ahead, pushing EUR/NZD to the top of the descending channel and encountering resistance again.
After consolidating during the US Thursday session and Friday Asian session, we saw an additional rally in the pair, only to encounter resistance again. It is possible that news of the Bank of Japan holding interest rates at very low levels may have brought in some risk-on traders/interest rate hikes.
It doesn’t look like we’re going to get a significant step forward to give this strategy a clear decision about whether or not it works. But for those active traders who risked opening a short position around the psychological level of 1.7600 (around the top of the descending channel), you will probably be able to grab a few pips before the weekend. For those who were a little less patient with your entry, you probably gave up a few pips if you decided to offload before the week closed.
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