It was another week of top tier events for forex traders to balance ideas around. Our forex strategy discussions had a mixed week as some fundamental triggers didn’t play out but we did see one solid setup in NZD/CHF.
Check out our reviews to see what happened and how we did!
If you’d like to follow our “Play of the Day” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.
On Tuesday, EUR/AUD rose to the top of the watchlist with potential action ahead for the Australian dollar. The recent broad bullish move in the euro took the pair to the top of a well defined range, which failed to break once again, and quickly drew in technical sellers and/or profit taking, an assumption given there was lack of catalysts for the turn during the Tuesday session.
We then looked forward to the Australian CPI release, which odds favored a neutral-to-slight uptick outcome, which would likely keep the “no cut” theme in play (and a potentially bullish AUD reaction). We noted that if that scenario played out, there was still room for EUR/AUD to move lower, and discussed additional moves traders may take if it did.
Australian later came out lower than expected at 3.4% (3.6% forecast), further raising the odds of less hawkish rhetoric from the RBA, possibly even raising the possibility of cuts sometime down the road if economic activity slows.
That outcome immediately invalidated our fundamental trigger, and as expected with the result, the Aussie immediately went into bull mode for the rest of the session, invalidating our range reversal scenario as well.
With that outcome, our strategy discussion was highly likely not supportive of a positive outcome as no short position should have been taken, thus not effective. But for those watching Australian CPI real time and adapted to the surprise outcome by selling AUD, the odds of a positive outcome should have been pretty good.
On Wednesday, finally got to one of the highly anticipated FX events of the week: the RBNZ interest rate decision. The market had been pricing in a potentially hawkish hold, with a few traders even seeing small odds of a rate hike…what?!
Well, then it’s no surprise that the Kiwi dropped like rock on Wednesday after a somewhat neutral hold statement from the RBNZ. They held the OCR at 5.50% but stayed open to rate hikes if needed and pushed the possibility of rate cuts to 2025.
After the drop, we made arguments that the longer-term uptrend could possibly attract buyers, especially if the broad risk sentiment environment shifted more positive (and/or anti-USD sentiment grew) around top tier U.S. data like GDP and the highly anticipated Core PCE Price Index update.
Of course, we also looked at the possible scenario where if broad risk sentiment continued to lean more negative (i.e., likely the result of strong U.S. data), NZD/CHF could see more losses this week as traders price in higher odds rate cuts being pushed back.
NZD/CHF continued to drift lower after our discussion and finally did stabilize around the S2 Pivot Support area. This behavior change also correlated with the latest U.S. GDP read for Q4 2023, which came in below expectations/previous at 3.2%.
Buyers really began to step on Thursday, correlating with the U.S. core PCE Price Index and weekly jobless claims data, which also raised anti-Dollar sentiment and risk-on vibes. The core PCE Price Index data was mixed between the monthly and annual reads, so its likely traders focused more on the weak initial jobless claims data, and possibly on the lower Personal income and expenditures data that was also released with core PCE data.
Whatever the case may be, NZD/CHF found a bid at that time, and as expected in our original discussion, traded higher with improving risk-on sentiment.
Arguably, this discussion was effective in potentially supporting a positive outcome as our high quality scenario of weak U.S. data prompting sentiment shifts in our favored bias played out, our target support area held, and the resulting move did hit our first target resistance area (S1 Pivot Support level).
On Thursday, we saw that hawkish comments from Japanese officials gave the yen a lift as traders priced in rising odds of a rate hike from the Bank of Japan this year. This took yen pairs quickly to the downside this week, including the highly liquid EUR/JPY pair.
And with more top tier events yet to hit the markets, we thought intraday volatility would stay elevated on EUR/JPY, likely to be supported by Euro area updates, including CPI reads from Germany, France and Spain in the upcoming London trading session.
We thought that if Euro area updates came in weaker than expected, the intraday selloff in EUR/JPY could potentially draw in more sellers, so we discussed strategies there, both aggressive and conservative.
Euro area updates were soon released after our discussion, mostly coming in mixed but arguably net negative. Germany’s data showed weakness in the Euro area’s largest economy while France posted net positive updates overall.
EUR/JPY rallied around the release, retesting the pivot area before sellers jumped back into the downtrend to take the pair into new intraweek lows around the S1 Pivot Support area.
It was there where it looks like the market ran into a wall of buy orders on EUR/JPY as price rebounded quickly, possibly orders from longer-term fundie and technical players, and/or short-term players moving with the late risk-on shift around the major U.S. data releases.
Whatever the case may be, EUR/JPY traded above the Pivot Point by Friday trade, where it stabilized and traded sideways into the weekend.
This discussion was a tough one to grade as the fundamental trigger of weak Euro area data didn’t really play out. But EUR/JPY did find short-term resistance after a pullback to 162.50, a scenario we did mentioned in the original discussion, which preceded the drop to new lows very briefly.
Overall, we’d rate this discussion as neutral towards supporting a potentially positive outcome as the fundamental triggers were clear enough for a strong bias, the direction was right but short-lived, and it would have required very active risk/trade management to achieve a positive outcome.
Too tired or lazy to journal? Check out TRADEZELLA! It’s an easy-to-use analytics & journaling tool that can lead to valuable performance & strategy insights! The app also features tools like trade replay & backtesting to help improve performance and sidestep avoidable mistakes. Click here to see if it’s right for you!
Disclaimer: Babypips.com earns a commission from any signups through our affiliate link. When you subscribe to a service using our affiliate links, this helps us to maintain and improve our content, a lot of which is free and accessible to everyone–including the School of Pipsology! We appreciate your support and hope that you find our content and services helpful. Thank you!
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.
