With expectations for a less volatile week, our strategists slowed the trading pace slightly with just two Forex market discussions surrounding the release of the Australian CPI.
Among the two discussions One scenario/price forecast saw both financial and technical arguments being 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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AUD/JPY 1 Hour Forex Chart by TradingView
On Tuesday, the upcoming Australian CPI was the target trigger for the week, an event that tends to move the Australian dollar, especially as it is one of the key inputs to the RBA's monetary policy outlook re-pricing.
In our event guide to the Australian CPI update, the latest business surveys showed an acceleration in inflation growth, but market expectations were for the CPI rate to decline from 3.5% y/y to 3.3% y/y.
In a scenario where the Australian CPI comes in hotter than expected, we focused on the strong upside in AUD/JPY for potential Aussie buy setups. In a scenario where the inflation update comes in below previous expectations as the market expected, we discussed a potential short setup for the Australian dollar in AUD/CAD.
Well, it looks like the business surveys were right in this case Australian CPI came in hotter than expected at 3.6% y/ywhich supports the case for interest rates to remain high in Australia.
This result triggered our long bias on the AUD/JPY pair, and as expected based on our research into the event evidence, the AUD/JPY pair pulled back after the initial rally higher in this event.
In our original discussion, our strategists believed that a pullback to the key psychological handle 104.00 could attract technical buyers and longer-term investors, but the pair actually fell to the pivotal S1 support level/former strong support zone as of May 22. .
This additional decline was likely due to widespread risk-off sentiment sparked by rising geopolitical tensions and net hawkish comments from FOMC officials Williams and Bostic supporting higher interest rate expectations on Wednesday.
From the S1 pivot support level/former strong support zone, technical buyers quickly intervened, and aided by the fall in US Treasury yields during Thursday's US session, risk appetite expressions such as buying AUD/JPY benefited.
Overall, we rate this price strategy/forecast as “likely” in that it is supportive of a net positive outcome.
The AUD/JPY pair declined as discussed by our strategists in this particular scenario, and while the decline was deeper than expected, it was within the daily ATR level of the target entry zone. So the odds were high that long-term players would be able to overcome the decline.
For those who expressed long positions in the area from the pivot point down to the S1 pivot support level / previous strong support area, it is very likely that the result will be a net positive without very complex risk management/trading due to AUD/JPY closing near the top Its levels during the week on Friday.
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