We’ve put out five short-term forex strategies this week, with three directional calls arguably playing as we’d hoped to some extent. Check out our quick recap to see how they played and how we can improve in the future!
Forex Week Setup: NZD/USD Minor Correction – May 21, 2023
Forex NZD/USD for 2 hours Graphics by TV
At the beginning of the week, expectations were very high that the RBNZ would raise interest rates, and with the bullish momentum in NZD/USD, we were looking forward to the potential for more upward movements in the pair this week.
We noticed that the technical indicators were showing bearish signals at that time, so we noted that a decline in the pair was likely and that we would be watching 50% Fibonacci for a possible development of the setup.
Unfortunately for the NZD/USD bulls, there were no bullish reversal patterns to be found after the RBNZ raised interest rates by 25 basis points as expected, but then signaled a pause, quickly attracting sellers (although Likely profit-taking after the Kiwi’s uptrend in May).
Therefore, no long setup developed for us as the strategy was quickly nullified with the surprise appearance of the “bullish bullish scenario”.
EUR/AUD: Tuesday – May 23, 2023
EUR/AUD for two hours Graphics by TV
On Tuesday, EUR/AUD hit the radar as a bearish triangle developed in the works, ahead of potentially volatile conditions ahead for the euro with upcoming European PMI survey data.
With the market testing a bearish “highs” pattern and signaling a possible oversold condition at the time, we thought the bulls might be looking to take over after the bounce from triangle support, break-up, or bearish “highs” pattern.
Well, it looks like the bulls are back with some flak as the pair broke out of the triangle during the Asian trading session on Wednesday. This was not due to the European PMI data (which had little effect on volatility), but more likely due to the weakening of the Australian dollar as it fell along with its close trading partner the New Zealand dollar, which fell after the “interest rate hike” of the US dollar. Reserve Bank of New Zealand.
Australian Dollar / New Zealand Dollar: Wednesday – May 24, 2023
AUD/NZD for two hours Graphics by TV
AUD/NZD appeared on the watchlist on Wednesday as the market retested the top of a descending channel pattern and volatility is expected to remain elevated following the RBNZ’s interest rate and monetary policy statement earlier in the session.
The technical indicators and patterns were pointing to a possible reversal setup to watch out for soon, but we didn’t rule out the possibility of an upward breakout due to the strong bullish momentum created by a catalyst from the higher level.
After finally testing and consolidating the top of the channel, AUD/NZD finally broke out to the upside. After a short pullback to a channel pattern, the pair found new legs for another higher move ahead of the weekend.
British Pound / US Dollar: Thursday – May 25, 2023
GBP/USD for 15 minutes Graphics by TV
With potential major catalysts ahead for the US dollar and strong ideas driving the British pound, we’ve been scrutinizing the GBP/USD for a possible short-term move ahead of the weekend.
We note that volatility is likely to pick up for the pair, especially for the US dollar which had a slew of drivers including core PCE data and debt ceiling talks. On the other side of the coin, Sterling may attract more buyers as the latest UK CPI data reflected a stubborn inflationary environment.
With this fundamental picture of potential higher volatility and potential bullish sentiment for GBP, we are watching for a floor to form on GBP/USD, and if so, a return to a bearish bullish pattern is likely.
Well, the floor finally formed during Thursday’s US session around the potential buying area seen at 1.2320, and with the help of positive developments of the US debt talk, better-than-expected UK retail sales data, and risk sentiment, traders came to push the Sterling up to the upper half of the channel and retest the handle. The main psychological is around 1.2400 on Friday.
USD/CHF: Thursday – May 25, 2023
USD/CHF for two hours Graphics by TV
We also spotted this textbook technical setup on Thursday on USD/CHF, a setup that could attract USD sellers after hearing that Republican lawmakers were leaving to start the weekend without a debt deal.
With this scenario, it appears that the odds of traders taking long USD profits ahead of the weekend will rise, a move that could take USD/CHF lower into the mid-channel region before catching some support.
It seems that this was the scenario that played out as USD/CHF fell to the 0.0920 level on Friday, which seems to have been enough to attract buyers, especially after a hotter-than-expected US core PCE read. Congratulations if you were able to stick with this strategy and get a 50 pip retracement before the weekend!