Play of the Day Recaps: Sept. 11 – 14, 2023

It was a fantastic week for our forex strategists as four out of four discussions played out favorably relative to our biases and expectations.

Check out the recaps below to see how using fundamental analysis helped our efforts to anticipate price action, which can hopefully help you understand this part of the trading process better and level up your fundamental analysis skills!

On Monday, expectations were riding high that the upcoming U.K. employment data update for July would be as weak as a soggy biscuit. This had the potential to lure in fundamental sellers, eyeing the British pound like hungry predators.

And across the pond, U.S. dollar bulls have been throwing a raucous party as buyers have been flocking to the Greenback with recent U.S. data supportinng expectations of hawkish rhetoric from the Federal Reserve to continue.

So, we leaned bearish on GBP/USD in the short term, all eyes on a retest of the 1.2600 broken support area for bearish reversal patterns if the U.K. employment data disappointed. And if the stars aligned with continued USD strength, we had our sights set on a potential dive down to the 1.2400 – 1.2450 area.

Arguably, the U.K. employment update did disappoint as evidenced by broad weakness in Sterling on the event. While the rate of wage growth increased (likely raising BOE hike speculation), there was a large net negative change in jobs and the unemployment rate ticked higher to 4.3% as expected.

As for the dollar, it was on a roll higher, especially after Wednesday when we started getting a flow of net better-than-expected updates from the U.S. Most notable was a strong U.S. CPI update sparking most of the gains for the Greenback this week.

For those who were a little more aggressive and didn’t wait for the full bounce we were looking for, it’s likely this discussion had a net positive outcome if risk managed well through a heavy week of calendar releases from both countries.

After an arguably net weak U.K. employment update (strong wage growth vs. strong job loss), we continued to lean bearish on the British pound, and when we saw growing optimism in Asia region markets after Country Garden (Chinese property giant) received an extension to pay off some of its bonds, GBP/AUD made sense to check out on Tuesday.

Originally on the 15 minute chart, the pair was trading sideways during the previous two sessions, forming a rectangular range pattern at the end of a downtrend. Given the fundies influence on both currencies discussed above, we decided to watch out for a sustained downside break before considering leaning further short.

Along with the arguably weak U.K. employment situation update discussed above, the U.K. followed up with a weaker-than-expected GDP update that drew in Sterling fundie bears for a moment.

As for the Aussie, not only did the net better-than-expected Australian employment update likely draw in the bulls, but we got news of proposed efforts by the Chinese government to support their economy & positive Chinese data, lifting Asia region assets like the Aussie.

Overall, the bears won handily on GBP/AUD this week, but the outcome was likely more dependent on the risk management strategy/plan as the pair saw a downside break fakeout before returning to the 1.9500 major psychological handle.

This strategy discussion likely had a positive outcome if stops were wide enough to weather that bounce, and the trade management plan accounted for the possibility of an extend move to the downside.

It was U.S. CPI day and based on expectations of August showing further inflation stickiness, we leaned bullish on the Greenback if the number came out higher than expected or higher than July’s read.

On the other side of the coin, with recent sentiment and data falling hard in the Euro area but inflation staying relatively high, the forecast for the European Central Bank interest rate statement was pretty cloudy. The market consensus seemed to lean towards a rate hike, but it could have really gone either way before the event.

Our main thought was that if U.S. inflation data did come out strong, our top technical setup on the watchlist was if EUR/USD retested the 1.0775 – 1.0800 area (R1 Pivot Point level, the 38.2% Fib retracement of last week’s pullback, broken support), we’d be on the look out for reversal candles formed there. That scenario could draw in both fundie and technical players with a sell bias and return the pair to the downtrend.

The euro fell across the board on the ECB decision event, as the ECB hiked as expected and didn’t give any clear signals of weather or not they were ready to stop hiking near-term. With that outcome, it’s likely euro traders quickly return focus to the slew of net negative data updates recently and likely ahead.

And as discussed in the GBP/USD recap above, U.S. bulls were in control this week as the heavy weak of U.S. data updates gave traders plenty of fundamental reasons to lean bullish on the Greenback. Combined with the ECB reaction, it’s no surprise that EUR/USD fell quickly by roughly 100 pips during the U.S. trading session.

Again, risk management was likely a driving factor for the outcome of this discussion as the pair didn’t bounce up to our quality potential entry area.  But with such a strong downside move after the post, a range of risk management plans/ styles likely saw a positive outcome from our EUR/USD strategy discussion this week.

On Thursday, we thought that AUD/JPY could be gearing up for further short-term gains following Australia’s recent labor market report and other fresh catalysts.

Australia’s employment update was the main driver focus, which showed the unemployment rate remained steady at 3.7% in August and a surprising addition of 64.9K jobs, surpassing the expected 25.4K and recovering from July’s 1.4K job losses.

However, a closer look revealed that the majority of these new jobs were part-time, raising concerns for AUD bulls. Additionally, monthly hours across all jobs dipped by 0.5% in August, which might not bode well for the Reserve Bank of Australia’s hopes of sustained growth amidst slowing inflation. Given that, it’s no surprise in hindsight that there was some bearish action in the Aussie after the event.

Overall, though, this development combined with the risk friendly environment, including a fresh boost of stimulative action/positive data from China, and a net negative read on Japan’s core machinery orders data, we leaned bullish on AUD/JPY for the rest of the week.

The main catalyst on our radar at that point was the U.S. and China data dumps, and if we saw data to support the idea of a “peak in the interest rate hiking cycle,” then that would be our fundie confirmation the AUD/JPY uptrend has a chance to stay alive.

From a technical analysis standpoint, we thought an area to watch on a pullback that may draw in both fundie and technical buyers was the 94.50 – 94.60 area, which if triggered, could draw in buyers up to the 94.90 previous high area in the short-term.

So, the fundies did play out in our favor with data dumps from both China and the U.S. pointing to higher odds of a soft economic landing and a peak in the hiking cycle ahead. This seems to have been enough to draw in buyers and take the pair not only to our short-term target area, but up to the 95.50 minor psychological area before running out of steam.

Overall, this was highly likely to have lead to a positive outcome on a wide range of risk management strategy styles, more so for those who risk managed a more aggressive entry strategy than our discussion target entry area around 94.60.

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