It’s been a strong week for our strategy discussions, with three out of five target markets behaving relatively close to expectations. This was largely due to the expected weakness in the British pound and another round of risk aversion in the market that started on Wednesday.
Forex Week Setup: GBP/NZD Brewing Reversal? – May 8, 2023
Forex GBP/NZD 4 hours Graphics by TV
We discussed the potential for a round of GBP/NZD weakness on Monday, especially if New Zealand posts a recovery in inflation expectations. We also noticed a chart setup that might attract technical sellers, and a head and shoulders pattern, which indicates a possible reversal on the four-hour time frame.
The bearish break came, most likely due to a pickup in short-term sentiment towards the pound, but that was quickly reversed on Friday after New Zealand printed not only lower future inflation conditions, but also deflationary manufacturing conditions in April. As a result, the GBP/NZD surged higher as the New Zealand dollar weakened.
Given that this setup is on the 4 hours chart, this could turn out to be a reversal in progress for swing/longer term players, but with weak reports coming out of New Zealand triggering a strong bearish reaction. Kiwi doesn’t make much sense right now.
Canadian dollar / Japanese yen: Tuesday – May 9, 2023
CAD/JPY 30 Minute Forex Graphics by TV
On Tuesday we focused on the CAD/JPY pair, noting resistance patterns on the chart, and a possible reversal back to the downside if risk sentiment turns negative and the oil price turns lower during the week.
After this analysis was published, the price actually stalled around the 101.00 region before crashing on Wednesday, linked to a drop in oil prices after the EIA reported a surprise build in oil inventories of 3 million barrels against an expected drawdown of 1.1 million barrels.
Risk-off sentiment grew broadly on Thursday after weaker-than-expected US data and growing concerns about regional banks could push more buyers than sellers in the Japanese yen to push CAD/JPY lower, and it appears to have bottomed near 99.40 on the day. Friday.
Depending on how you manage this risk, this move should have been very good for the CAD/JPY bears.
British Pound / Australian Dollar: Tuesday – May 9, 2023
Forex GBP/AUD 1 hour Graphics by TV
In this article, we have seen a possible countertrend setup in the GBP/AUD currency pair. The pair has been in an upward trend for the past two months, which has created a very clean channel pattern on the 1-hour mini-chart.
But we thought the channel might break due to expectations of a weaker pound, which is a trend in behavior we’ve seen recently around the BoE’s monetary policy statements. We also noted potential resistance at Fibonacci levels if sentiment changes, and that the US CPI could cause wide swings in the currency markets to push GBP/AUD to those levels.
The US CPI event wasn’t enough to lift the market into Fibonacci territory, but we did see the market rally there on Thursday, just in time for the BoE’s monetary policy statement. As discussed in the BoE event guide, despite another rate hike, the event sparked a broad negative reaction on the GBP.
Unfortunately, for the GBP/AUD bears, this event was countered by the broad risk-off sentiment that hit the markets on Thursday weakening the Aussie more than the GBP at the weekend.
This technical setup may be suitable to remain on the watch list, but it is not likely to be a good trade until global risk sentiment turns positive and/or we see catalysts from Australia support RBA rate hike expectations.
NZD/USD: Wednesday – May 10, 2023
NZD/USD for 15 minutes Planned by TV
On Wednesday, we saw a potential opportunity for the NZD/USD bears as the market was riding the bottom of the rising channel, but the stochastics and moving averages were close to signaling a possible downward move ahead.
It wasn’t long after that that we saw a negative fake and then back to the bullish channel. But on Thursday, the real breakout came as the previously discussed risk-off sentiment hit the markets, linked to weekly jobless claims that fueled speculations of a possible top in the tight US jobs market.
NZD/USD broke consolidation and continued to fall like a rock, likely aided by weaker-than-expected data out of New Zealand on Friday, to take the pair from trading below 0.6400 on Wednesday to below 0.6200 in just two days.
EUR/GBP: Thursday – May 11, 2023
EUR/GBP 15-minute forex Planned by TV
On Thursday, we have been watching EUR/GBP on the 15-minute chart ahead of the BoE’s monetary policy statement, looking for a potential buying opportunity in the pair if the BoE indicates “lower growth and employment estimates”.
We also discussed a potential support area to watch which is the S1 pivot point level for the day at 0.8680 as a potential area to attract buyers and take the market back up to the key psychological area 0.8700 – 0.8730.
The market actually got choppy ahead of the BoE event, touching a potential support area that we are watching around 0.8680 before stabilizing and reversing.
As with previous BoE events, traders pushed sterling broadly lower in the session as BoE Governor Bailey hinted that the point at which the BoE might halt interest rate hikes was approaching.
EUR/GBP surged higher in the event, finally settling around the previously discussed target resistance area in the post.
This was probably a good strategy for risk managers who stayed focused and smart, and executed entries and exits appropriately around the event. Congratulations if that’s you!
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