Our forex strategists mainly focused on the Kiwi, Sterling and U.S. dollar during another heavy week of economic catalysts.
They started off strong with a great call on NZD/JPY, but as the markets got choppier it was tough to tell the effectiveness of the other two discussions…Check out our reviews to see how we did!
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On Tuesday, a weaker-than-expected inflation expectations print from New Zealand led to an initial selloff in the New Zealand dollar (NZD). Our strategists thought that this created a potential short-term buying opportunity in the longer-term price uptrend (and interest rate outlook divergence) in NZD/JPY, on the idea that the Reserve Bank of New Zealand (RBNZ) may adjust its hawkish stance in response to the data, providing a temporary break in the NZD’s recent strength.
Our bias was bullish in favor of the longer-term fundie themes, and if support formed around a technical confluence area (i.e., Pivot Point (91.12), 38.2% Fib retracement, and 100 SMA) then that may draw in buyers into the longer-term fundie bias and price uptrend.
We also noted the upcoming U.S. CPI event as a potential broad market influence, and if U.S. inflation comes in hotter-than-expected, then USD/JPY may see enough bullish demand to help push up NZD/JPY in the process.
The technical area of interest discussed was actually tested twice after our discussion, and it looks like it did draw in net buyers, possibly with the help of the U.S. CPI event as it did prompt a strong upward move in USD/JPY.
Overall, this appears to have been a very effective discussion towards a potentially positive outcome. Our fundamental and technical arguments both seemed to have drawn in net buyers, and the move higher was sustained through the rest of the week without ever pulling back to our discussion price around 91.35.
On Wednesday, softer-than-expected U.K. inflation figures for January sparked a sharp selloff in the British pound (GBP). The data likely prompted increased speculation of potential rate cuts by the Bank of England (BOE), correlating with a significant drop in the GBP/NZD pair, pushing it below the 2.0700 level.
The key focus for GBP/NZD turned to the 2.0650 support zone. This area aligns with a confluence of several technical indicators (Pivot Point, mid-channel level, previous support, and the 100 and 200 SMAs). We thought that this area had strong cases for both the bulls and the bears, so we developed scenarios for both sides to watch.
If GBP’s bearish momentum fails to hold, this support zone could attract buyers, leading to a potential rebound or even an intraday reversal. However, if the market sentiment remains focused on the lower inflation data, further GBP weakness could push GBP/NZD toward the February lows near 2.0500.
Price action stalled in that area through the rest of the session, but found bullish momentum after a net negative GDP update from the U.K. during the Thursday London session. That apparently drew in a strong round of sellers, which was quickly reversed during U.S. trade. That was actually another opportunity for fundamental sellers (interest rate divergence players) to short again as the market retested the pivot point and SMAs, where it found sellers once again during the Friday session.
Overall, we’d argue this was net neutral to effective as the bear case played out, and while our downside target was nearly hit, we fell like the downside momentum was pretty limited given the weakness in U.K. data, and the outcome would have depended more on risk / trade management.
On Thursday, we saw that EUR/USD had appreciated from its recent lows around 1.0700 and began to approach a key resistance area near the S1 Pivot line (1.0740), the 100/200 SMAs, and a mid-January downtrend line.
We thought the upcoming U.S. economic data releases, namely retail sales figures, may influence the pair’s trajectory. Most notable to watch was the U.S. retail sales data, which was expected to show slightly weaker growth in January. We thought that if this was the case and EUR/USD popped, we’d be in watch mode to see if it had enough momentum to break the technical area of interest or fail and draw in sellers.
Well, retail sales data did massively disappoint and prompted a broad USD selloff, and EUR/USD did break above the Pivot point area, but wasn’t able to get away to the upside. It actually clung to the pivot point area going into the Friday U.S. PPI release, which came in better-than-expected and drew in sellers for a quick move to the S1 support level and back.
Overall, we’d rate this discussion as neutral to potentially achieving a positive outcome as the pair was choppy around our target entry area and did trade both below and above that area as well. The outcome could have gone either way, but would have been highly dependent on an individual traders risk and trade management plan and execution.
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