FX Play of the Day Recaps: May 1 – 5, 2023

With so many higher level catalysts this week, it was no surprise that volatility rose beyond the middle ranges and the steady stream of catalysts gave us some choppy price action.

But we are very happy with the week, more often than not our strategies predicted the favorable short term trend and fundamental filters kept us away from unfavorable moves.

Forex Weekly Setup: Will the AUD/CHF Downtrend Continue? – May 1, 2023

On Monday, we spotted a writing technical setup on AUD/CHF, looking to play the potential higher volatility for the Aussie that the RBA’s monetary policy statement will bring.

Our strategy was that “If the Reserve Bank of Australia pauses its rates and does not signal enthusiasm to return to the game of rate hikes” That might be enough to influence traders to sell some Aussie after a one week rebound in the Aussie. But that’s only if the overall risk-off bias is more risk-averse, as that could attract some CHF-buyers looking for a ‘safe haven’.

Unfortunately for the Australian bears, the Reserve Bank of Australia completely surprised the market with its rate hike, sending the Australian dollar higher against the majors, and AUD/CHF was up nearly 1.33% on the event.

Finally, the pair made a high, but well above the bearish technical arguments that we highlighted in the post.

There risk sentiment shifted dramatically on Tuesday after weaker-than-expected JOLTS jobs data from the US indicated weakness in the employment sector.

This shift in risk sentiment is likely the reason AUD/CHF fell significantly during the US Tuesday and Wednesday session, likely helped by the FOMC statement (Powell dismissed the idea of ​​another rate cut during the FOMC press conference ) and the announcement of another US regional bank, Backwest, announced a possible sale, rekindling banks’ concerns in the process.

Overall, given our fundamental filters (no rate pauses), we’ve avoided an initial rally which could have been a quick net loser for those who took a short side through an aggressive risk management strategy.

EUR/JPY: Tuesday – May 2, 2023

On Tuesday, we discussed the potential EUR/JPY setup ahead of the ECB’s highly anticipated monetary policy statement for May.

That was our strategy idea The pair is likely to play to the upside after the pullback if the ECB indicates that it will continue to remain hawkish given monetary policy tightening and bullish reversal patterns that formed around the SMA and Fibs.

Unfortunately for the bulls, the bearish scenario discussed later came into play as the ECB signaled a slower pace of tightening ahead given fears of a slowdown in lending terms in the Eurozone.

Combined with mid-week risk aversion sparked by weak US data, the FOMC, and banking crisis fears to push the yen broadly higher, EUR/JPY smashed through that notable technical area with ease. And because we stuck to our basic filters, we avoided that potential hit, too.

DXY: Wed – May 3, 2023

Wednesday, We were bearish on the US Dollar Index, citing various themes that are likely to continue to pressure the greenback.

Most notable of these was the highly anticipated FOMC rate hike which is likely to attract sellers who see higher rates as having a negative impact on the US economy.

We also pointed out that if the ADP and ISM PMI employment data do not indicate a strong business environment in the US, the US dollar could attract sellers if it breaks below the rising channel on the hourly chart shown in the previous post.

Well, the FOMC event came and pushed the DFX lower to retest the 101.00 handle roughly in the session. But the decline largely ended there, likely due to profit-taking or risk-taking ahead of Friday’s US jobs report.

As expected based on the US jobs indices, this report came out hot as fire and pushed the dollar higher quickly after the release.

This was actually another selling opportunity as DXY hit a selling wall around the 101.70 handle, bringing it back to nearly one-week lows before Friday’s close.

Gold (XAU/USD): Wednesday – May 3, 2023

Aside from the US dollar, we have been watching gold closely on Wednesday after it broke through the sideways trading behavior (ranging between $1980-$2005) that persisted during the latter half of April.

Our underlying strategy was the underlying notion that if the FOMC hints at a pause in rate hikes or a slowdown in the rate of rate hikes, the USD could take a hit and validate this bullish breakout in XAU/USD.

This appears to have worked out and luckily for the gold bulls, it is possible that they got an extra boost upwards from renewed banking sector concerns (after Bakwest announced a potential sell-off as discussed earlier) which is a theme that usually benefits hard assets like gold.

XAU/USD rose 2.78% after breaking the consolidation from the $2015 region and testing $2067 before returning most of it after Friday’s hot US employment update.

Congratulations if you managed to make that initial bullish breakout and take profit before the NFP report!

NZD/JPY: Thursday – May 4, 2023

On Thursday, we spotted another bearish situation for the yen, this time against the New Zealand dollar. From a technical point of view, the NZD/JPY has been retreating after a strong rally in the past week, and is starting to see support at the broken resistance/Fibonacci retracement area shown on the hourly chart.

While we didn’t mention a specific event to drive the pair in favor of our longstanding bias, we thought so If risk sentiment turns positive this week, that will be enough to draw the bulls into the NZD/JPY.

Despite a slight return to broad risk sentiment, the NZD/JPY was still able to find buyers in the technical area shown around 83.50. With no specific catalysts for the NZD or JPY news, the NZD/JPY managed to build a strong rally, testing roughly 85.00 before the weekend.

USD/JPY: Thursday – May 4, 2023

We also saw potential opportunity in USD/JPY on Thursday, this time a setup that could attract buyers in reaction to the hotly anticipated monthly US official employment update.

The idea was that tThe pair can attract buyers if the US employment report came out strong, and it is likely to attract a potential buyer in the area adjacent to the S1 pivot point, the Fibonacci retracement area, and the previous consolidation area around 134.00.

Well, the number of positions came in hot as expected, leading to a significant bounce from the 134.00 handle to test and find resistance around the 135 handle.

For those who played the long side before the event, they took a big gamble, and it seems to have paid off nicely, especially if you had a risk management plan that kept a tight stop and a large profit target.

For those who were more conservative and waited for the hourly candle to approach to make moves, you are not likely to see a resolution in this trade until next week. But for now, this could be a setup for a strong swing until we get new data pointing to more US slowdowns ahead.

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