This week our currency strategists focused on the Australian CPI update and the Swiss National Bank’s Monetary Policy Statement in search of potential high-quality setups.
Of the four scenario/price forecast discussions this week, Arguably, two discussions saw both financial and technical arguments raised They become potential candidates for overlay trading and risk management. Check out our review of those discussions to find out what happened!
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GBP/AUD 1 Hour Forex Chart by TradingView
On Tuesday, our Forex strategists set their sights on the upcoming Australian CPI release and its potential impact on the Australian Dollar. Based on the CPI report’s event evidence, markets were expecting headline inflation to slow from 3.5% y/y to 2.7% in August, which would still leave annual inflation above the RBA’s target range.
With these expectations in mind, here’s what we were thinking:
“Australian decline” scenario:
If the CPI comes in at level, weaker than expected, or lower than the previous reading, we would expect this to attract sellers of the underlying Australian dollar in the short term. We focused on the GBP/AUD pair for a possible downward move for the Australian dollar, as the Bank of England is one of the few central banks that is resisting interest rate cuts as much as possible, which could keep buyers interested in the pound, and the pair appears to be attracting technical support at a low level. . The main area of interest is between 1.9400 – 1.9500.
“Australian Progress” scenario:
If Australian inflation data surprises to the upside or shows resilience in fundamental measures, we thought this could support the RBA’s relatively hawkish stance and strengthen the Australian dollar. In this case, we viewed the AUD/NZD pair as potential buying opportunities, given the pair’s recent bullish behavior since finding key support around 1.0800 in early September.
What actually happened
Well, it’s Wednesday, and the Australian Bureau of Statistics (ABS) has released CPI data for August. Headline inflation was 2.7% year-on-year, fully in line with market estimates and below the 3.5% increase in July.
Key points from the CPI report:
- Excluding volatile items and holiday travel, consumer prices rose 3.0% in August, slower than the 3.7% rise in July.
- The RBA’s average inflation cut (a measure of core inflation) was 3.4%, lower than the annual increase of 3.8% in July.
- Housing (+2.6%), food and non-alcoholic beverages (+3.4%), and alcohol and tobacco (+6.6%) saw the largest gains.
- The transportation sector (-1.1%) and furnishings (-0.9%) helped offset the rise in prices.
Market reaction
The initial market reaction to the CPI release saw a brief pullback in the Australian dollar, as traders digested a broadly cooler inflation reading. However, the Australian dollar quickly recovered its losses after the release, likely due to the CPI release being considered unlikely to change the RBA’s view that inflation “remains too high”.
Looking at the GBP/AUD chart, we can see that the pair initially saw a small bounce after the CPI release, rising to retest a strong technical confluence area between the pivot point and the bearish highs pattern.
As the week progressed, the GBP/AUD pair reversed back lower, finding support around the S1 pivot point, but eventually breaking below the S1 pivot point and the 1.9400 psychological level.
Interestingly, the downward trajectory of the GBP/AUD pair was affected by several factors over the course of the week:
- China’s monetary and fiscal stimulus announcements early in the week provided support for the Australian dollar and broad risk-on sentiment.
- The Reserve Bank of Australia’s decision earlier in the week to keep interest rates steady at 4.35% initially strengthened the Australian dollar, although some of those gains were eased following the governor’s comments on productivity concerns and weak GDP growth.
- Positive data from the US mid-tier on Thursday lifted risk assets, including the Australian dollar, across the board.
- Extreme volatility on Friday ahead of US core personal consumption expenditures price index data, followed by risk sentiment after its release, supported the Australian dollar against the British pound.
Judgment
So, how do we do? In our original discussion, we mentioned potential long setups on GBP/AUD if the Australian CPI comes in weaker than expected. Although the CPI was lower than the previous month, it was fully in line with market expectations. This led to a short upward movement for GBP/AUD, but it did not last.
We mentioned a couple of technical setups, including a sustained bullish trade above the 1.9600 psychological handle that may attract technical bulls, or a pullback to trendline support near the S1 pivot point (1.9435), where buy support may form.
The bullish breakout scenario never had a chance to succeed, but the formation of buying behavior around 1.9450 actually happened several times. Unfortunately, only the first bounce from that area could have been positive, while subsequent retests would likely be negative, making the chosen trading plan and real-time execution decisions big factors in this trading outcome.
Because of the implementation factor We rate this discussion as “Likely to be Neutral.” To support the net positive result, mainly because the market closed below the discussion price and event price, but there was an opportunity to gain some pips for skilled and active traders.
EUR/CHF 1 Hour Forex Chart by TradingView
Wednesday, Our strategists have set their sights on the Swiss National Bank’s (SNB) monetary policy statement and its potential impact on the Swiss franc. Based on our event evidence, expectations were for a 25 basis point rate cut from 1.25% to 1.00%, with possible downward revisions to inflation expectations and potential threats of currency intervention.
With these expectations in mind, here’s what we were thinking:
“Increasing safe haven” scenario:
If the SNB implements the expected 25 basis point cut, we thought this outcome would actually attract SNB bulls. This outcome has likely already been priced into the market, so if it comes down the road, we have seen strong possibilities for traders to take profits from short CHF trades.
We have tied this forecast to the euro, given the recent string of net negative data for the Eurozone, likely supporting further interest rate cuts ahead of speculation and pressure on the euro in the short term.
“Selling the Franc” scenario:
If the SNB makes the expected 25 basis point cut and signals a stronger easing cycle or perhaps a currency intervention, we expected this to impact the Swiss franc. We have been keeping an eye on the GBP/CHF pair given the relatively hawkish stance on inflation and interest rates from the Bank of England, as well as the strong bullish price action in the pair recently.
What did the data say?
On Thursday, September 26, the Swiss National Bank announced its monetary policy decision:
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The Swiss Central Bank lowered interest rates by 25 basis points to 1.00%.as was widely expected.
Inflation expectations have been lowered significantly:- 2024: from 1.3% to 1.2%
- 2025: from 1.1% to 0.6%
- GDP growth is expected to reach about 1% in 2024, rising to 1.5% in 2025.
- The bank remained prepared to intervene in foreign exchange markets when necessary.
- Outgoing bank president Thomas Jordan hinted at the possibility of further interest rate cuts in the future.
Market reaction
The initial market reaction to the SNB statement saw a brief strengthening of the Swiss franc across the board, which was in line with the “buy rumours, sell news” base case, raising our primary case for monitoring EUR/USD. Swiss franc.
However, the bearish momentum for this pair was short-lived. As the press conference progressed and outgoing Bank President Jordan hinted at the possibility of further easing, the EUR/CHF pair found support and began to rise.
The upside was also limited, likely due to bearish sentiment on both currencies struggling into Friday’s session. Friday was where the bears took control, most likely a reaction to the sub-2% inflation readings from France and Spain that pushed the Euro lower, pushing EUR/CHF to break technical support levels and triggering our bearish technical bias. On the husband.
Judgment
In our original discussion, we mentioned a potential sell-off in EUR/CHF based on the idea that a negative outcome would likely be priced in and that if a cut of just 25 basis points occurred, there could be a “rumor buy and sell” scenario. – Al-Akhbar reaction.
We have now noted that if the SNB signals a more aggressive easing cycle, which it did with Chairman Jordan’s comments on potential future interest rate cuts, it could be possible for speculators to take control of underlying rates.
Given that the Swiss Franc’s reaction was bullish, we would likely lean that way, and when the pair broke to the downside on Friday, the odds of a successful trade were very strong, especially with a bearish catalyst for the Euro.
total, We believe it is “probable” that the discussion was fully supportive of a positive outcomeBut given that the action was limited to the price action on Friday, the downside was capped before the weekend close.