Central bank events and global PMIs were the main drivers this week, prompting our traders to cover a wide range of currencies, with a heavy focus on the US dollar.
Out of six discussions, Three scenario/price forecasts saw both financial and technical arguments raised To become a potential candidate for a risk management overlay. Check out our review of that discussion to find out what happened!
Watchlists are price predictions and strategy discussions supported by fundamental and technical analysis, and are a crucial step towards creating an account High quality discretionary business idea Before working on a risk management and trading plan.
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GBP/USD 1 Hour Forex Chart by TradingView
On Monday, the upcoming UK CPI was the first catalyst we would target this week, which was very likely to push the British pound into action as traders are likely to use this result to reprice monetary policy expectations by the Bank of England.
Based on our Event Guide for the UK CPI update, expectations were that surveys would show a slowdown in inflation conditions, and if so, a potential upward move for EUR/GBP would move to the top of our watchlist. But if inflation data shows accelerating rates of price growth, an uptrend in GBP/USD will be the situation to watch for us.
Well, the data was mixed, but with core CPI showing well above expectations and annual rates remaining well above the Bank of England's 2.0% rate, markets appear to have taken the update as quite hawkish, which is indicated by the strong rise in sterling in All Areas. .
This result sparked our long bias for GBP/USD, but with more higher-level events from both the US and UK, the subsequent price action remained volatile through the rest of the trading week. This was likely due to the surprisingly strong US PMI update on Thursday, which temporarily fell.
On Friday, weak UK retail net sales data hit the wires, but broad risk-on behavior emerged against the dollar (with no immediate major catalyst, and very likely profit-taking before the weekend), far outpacing the update in the UK. GBP/USD is back above pre-UK CPI levels/in line with post-event levels, to the top of the range for the week before the week closes.
Overall, we rate this price strategy/forecast as “Likely Neutral” in terms of being supportive of a net positive outcome. The GBP/USD pair has traded mostly below its post-UK CPI event price throughout the week, but for those who waited for dips to play on the long side with the money, the odds of a positive outcome are likely to be much better.
NZD/JPY 1 Hour Forex Chart by TradingView
On Tuesday, our strategists prepared for the only formal central bank statement this week, the latest monetary policy decision from the Reserve Bank of New Zealand. Our events guide for the RBNZ statement saw the most likely scenario, with the central bank still seeing inflationary pressures, which are likely to be tamed by signs of weakness in the labor market. With a balanced picture, the RBNZ will likely continue to stick to its neutral to slightly hawkish rhetoric.
In case we saw neutral to hawkish RBNZ results, upside in NZD/JPY was at the top of our watch list. As for a sudden dovish turn scenario, a potential bullish breakout for EUR/NZD was also on our radar.
Well, as discussed in the event guide, the Reserve Bank of New Zealand came out with a hawkish commentary statement, essentially discussing openness to rate hikes at this meeting. This led to a significant rise in the New Zealand dollar, gains that held steady for the rest of the week against most major currencies.
Following the event, the NZD/JPY pair fell, but this was likely driven by a broad round of risk-off sentiment, arguably stemming from a lot of comments from the Fed that interest rate cuts may come much too late. What the markets think.
But this pullback and pullback on Friday appear to be buying opportunities for traders looking to play the fundamental stories set in both the New Zealand dollar and the Japanese yen.
Overall, we believe this discussion was “most likely” supportive of a net positive outcome given the NZD/JPY pair traded at a week's high at Friday's close. But given the volatility during the week due to external factors, we believe the risk/trade strategy and its execution could have been an important factor towards a net positive result.
USD/CAD 15 minutes Chart by TradingView
For this week's latest target catalyst, our strategists took a look at the upcoming US Flash PMI updates for potential opportunities in USD pairs.
According to the Event Guide, market expectations were for an overall rise in US business optimism, but with several US regional surveys showing weakness, a lower net result also has the potential to emerge.
In the event that we see better than expected sentiment from the US PMI survey results, our focus will then be on the short-term uptrend in the USD/CAD, mainly due to the recent weaker than expected Canadian CPI data.
If US PMI results come in below expectations, the upside for NZD/USD will reach the top of our watch list for this session.
Well, the US Purchasing Managers' Index (PMI) updates came in strong and hit the markets hard as the manufacturing and services sector updates came in better than previously expected readings. The services sector update was particularly notable as it came in at 54.8 versus April's 51.3 reading (which was revised up from 50.9).
This clearly led to a long USD/CAD setup, as well as a decline in risk assets in the broad markets. Despite this, movement was limited as traders appeared keen to take profits on Friday after a week of US dollar dominance, sending USD/CAD lower ahead of the weekend after testing and stabilizing around the pivotal R2 resistance area late on Thursday. .
Given that the USD/CAD rose strongly after the US PMI update and reached the maximum target discussed in the original post, we rate this discussion as “likely” supportive for a net positive outcome. We believe that due to the market reversal on Friday, risk management/trading would have been a factor in the outcome.
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