This week, the calendar has provided a number of important catalysts, and our strategists have decided to focus on the Australian CPI update and the Bank of England Monetary Policy Statement to discuss the price outlook this week.
Of the four scenario/price outlook discussions this week, It can be said that both discussions witnessed the raising of fundamental and technical arguments. To become a potential candidate for Trade and Risk Management. Check out our review of this discussion to see what happened!
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AUD/JPY currency pair 24 hours Chart by TradingView
On Tuesday, our strategists focused on the Australian CPI update for Q2 2024 and its potential impact on the Australian dollar. Our event guide noted that the update points to a potential slowdown in consumer prices, with the annual CPI expected to rise slightly from 3.6% to 3.8%, while the quarterly rate is expected to remain flat at 1.0%.
Accordingly, we had two main scenarios in mind:
1. “Australian Avalanche” scenario: If CPI comes in as expected or lower, we would expect the RBA to start targeting rate cuts. This could attract core Aussie sellers, and we have our eyes on AUD/JPY for this particular scenario, given the pair’s bearish momentum and the yen’s recent resilience following some hawkish murmurs from the Bank of Japan.
2. “Kangaroo Jump” scenario: If inflation growth in Australia decides to be strong and hotter than expected, we thought the RBA might keep the dreams of a rate hike alive. This might be the time for the Aussie bulls to shine, which has led us to lean towards a risk-on AUD/NZD pair given the recent uptrend and downtrend in the NZD.
So what did we get? Well, Wednesday came, and the Australian CPI decided to throw us a curveball that would make even Shane Warne proud.
The Consumer Price Index update showed the quarterly rate held steady at 1.0%, while the annual rate rose to 3.8% as expected. But here’s where it gets interesting – the RBA’s average CPI (the one they really care about) came in lower than expected at 0.8% QoQ and 3.9% YoY.
The market reaction was quick. The Australian dollar rose slightly after the event, perhaps as a “sell the news and buy the facts” reaction given the broad weakness in the Aussie prior to the event. It could also have been some profit taking ahead of the highly anticipated Bank of Japan monetary policy statement, which turned out to be a hawkish outcome for the yen as the BoJ announced its decision to raise interest rates by 0.15% from <0.10% to <0.25% while policymakers agreed to reduce bond purchases to 3 trillion yen by the first quarter of 2026.
Our bearish bias on AUD/JPY is motivated at both the fundamental and technical levels.The pair attracted strong selling behavior very quickly after the events. In our original discussion, we noted the 98.11 support level (S1) as a potential target for sellers, which was tested faster than a kangaroo discovering a tasty piece of grass. Our second target, the S2 pivot support around 95.54, was also tested just before the weekly close.
So, how did our discussion go? In our opinion, this strategy was “Very likely” This forecast was supported by a net positive outcome. The market moved as we expected, meeting our fundamental and technical expectations. The pair continued its downtrend with some bounces thanks to the targeted event results and the risk-off market environment, pushing AUD/JPY to the support levels we expected, and the less dovish tone of the Bank of Japan added further strength to the yen.
GBP/CHF currency pair for one hour Chart by TradingView
On Wednesday, our strategists focused their radar on the Bank of England’s monetary policy statement and its potential to move the pound.
First, let’s talk about the Bank of England decision. Based on our work on the event guide, we saw that BoE members and markets were largely divided on whether or not to cut rates, leading to a wide range of possible outcomes (and high volatility for GBP) for the event.
As usual, we have prepared two main scenarios for you to watch:
“GBP Stumble” Scenario: If the BoE cuts interest rates or takes a dovish stance, we might conclude that this could attract core GBP sellers. We have our eyes on GBP/CHF in this particular scenario, given the pair’s bearish momentum and the broader risk-off environment.
“Pound bounce” scenario: If the BoE surprises the markets with a hawkish or less dovish stance than expected, this could be a good time for GBP bulls to shine. We have been watching GBP/NZD given the recent downward pressure on the NZD and the risk-off environment.
So what did we get? Well, on Thursday, the Bank of England decided to add some drama to the mix with a “carefully balanced” 25 basis point rate cut, taking rates to 5.00%. The unexpected 5-4 vote added an extra layer of drama to the decision.
The market reaction was more dramatic than a Shakespearean play. GBP pairs initially rose during the statement and press conference, but sellers generally returned, with broad market sellers likely choosing safe havens over GBP given the broader risk-off mood.
Our bearish bias on GBP/CHF is motivated on both the fundamental and technical levels. After a brief recovery attempt, the pair continued its downward journey with the Swiss train schedule set. It broke the S2 and S3 levels in the days following the BoE decision, making our analysis look sharper than a Swiss cheese knife.
So, how did our discussion go? In our opinion, this strategy was as successful as finding gold in the Swiss Alps. We give it a “Highly Likely” rating for being supportive of a net positive outcome.
Our bearish bias was spot on, with the fundamental and technical arguments aligned like gears in a Swiss watch, and aided by the broad risk environment, the pair saw a strong momentum move in favor of the sellers with no pullbacks in sight!
For both AUD/JPY and GBP/CHF, simple trading plans and risk management with minimal adjustments required were likely to yield a positive outcome, with opportunities for strong risk-reward ratios given the strong momentum in both cases.