Play of the Day Recaps: Sept. 4 – 7, 2023

Our strategists leaned long on the Greenback this week as sentiment could refocus on potential hawkish Fed behavior if U.S. data came in strong.

How did they do with a calendar filled with top tier events? Check it out!

After last Friday’s net positive U.S. updates on employment and business, we leaned bullish on the Greenback, and with the market seemingly putting more weight into Euro area recession fears over ECB rate hikes, we decided to check out EUR/USD for potential setups.

On Monday, EUR/USD was slowly bouncing after Friday’s big drop, and given the market drivers discussed, we thought that it would only take a shallow pullback to draw fundamental sellers into the pair.

We were eyeing the 38% Fibonacci retracement area around 1.0813 as the potential start of resistance, but it looks like we were a bit off as the bears came in quickly, especially after another round of weak PMI data from the Euro area.

That, along with weak Chinese Services PMI data sparking broad risk-off vibes, drew in the most bearish action for the week as the pair went into chop mode from Wednesday on.

Congrats if you leaned bearish as well with the fundies as your outcome was likely positive, depending on your risk management plan.

On Tuesday, the Reserve Bank of Australia hit the snooze button on interest rates hikes for the third time in a row, and with China Services PMI coming in weaker-than-expected, Aussie bears came out in droves.

So, we leaned bearish on Aussie short-term, choosing to GBP/AUD as the pair had just formed a double bottom pattern and broke the neckline to the upside to potentially return to the longer-term trend higher. Given the fundie and technical setup, we thought that a move to R3 (19780) was a reasonable target area for profit takers.

Unfortunately for us, GBP/AUD topped out just under the 1.9750 minor psychological level, right before the bears stepped in, likely due to dovish remarks from Bank of England officials to U.K. Parliament on Wednesday. Saying that policy is restrictive enough and rate hikes are no longer need will certainly turn the tone on a currency, as seen in Sterling this week during a steady drop after the event.

So, it was a solid fundie and technical setup, but the change in fundies for GBP turned the pair against us. But if you were able to adapt quickly to the BOE event, then there’s a chance of a positive outcome with good risk management.

The focus in the forex market on Wednesday was the impending monetary policy decision by the Bank of Canada (BOC). And with the pair starting to break above a long-standing resistance level since May, we thought that if the BOC remained vague on when interest rate hikes might resume and if U.S. ISM surprised positively, then the break may be able to sustain and draw in further bulls to a solid technical setup.

Well, the BOC did hold off on signaling another rate hike ahead as they noted evidence of demand easing, but did mention openness to raise interest rates again if needed. Kinda wishy-washy, right? Overall, it was an arguably net hawkish event for CAD, but with the U.S. ISM PMI data coming in much stronger-than-expected, that outweighed the BOC event for USD/CAD.

After a spike lower, USD/CAD spiked back up to hold its ground above resistance for the next few sessions until the Canadian employment update on Friday.

And boy was that event a market mover as it surprised big time with better-than-expected reads in net jobs change, unemployment rate, and the rate of average wage growth. CAD immediately spiked on the release as the argument grew that the BOC may have to raise rates again in the future.

In hindsight, the outcome of this price outlook discussion really depends on the risk management plan. We had the right bias and event outcomes, but price action was pretty choppy in the latter half of the week.

Those who played the resistance break-and-retest setup as a potential buy area for a short-term play likely saw a positive outcome if they took profits ahead of Canadian jobs event.

On Thursday, we saw that the U.S. jobless claims report was lurking in the shadows, ready to stir up some commotion like it’s done in recent weeks. Analysts were expecting a not-so-great reading this time around, possibly coaxing the dollar to backpedal from its recent swagger. If that’s the case, we thought it could draw in bargain hunters looking for a way to play that strong uptrend in USD/CHF.

Our bias was to see if the pair would dip to the Fibonacci retracement area and bullish reversal patterns to form, but the pair never made its way down there as the weekly claims data came in better-than-expected and lifted USD/CHF higher.

So, this idea was quickly invalidated by the fundamental event, but the pair did eventually dip during the Friday session. And it was around the 0.8900 major psychological area where the bulls decided to day trade the uptrend for quick pips, pushing USD/CHF back up to intraweek highs before the weekend.

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