Premium Forex Watch Recaps: April 9 – 11, 2024

Our strategists focused on the three major central bank events last week and discussed six potential scenarios and price outlooks around them.

Out of six discussions, four arguably saw both fundie & technical arguments triggered to become potential candidates for risk management ideas, with two likely being supportive of reaching positive outcomes.

Check out our reviews to see what happened!

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On Tuesday, our main target catalyst was the fast approaching monetary policy statement from the Reserve Bank of New Zealand. Expectations were for a possible “non-event” given the risks of an outcome supporting both restrictive policy and rate cuts were roughly balanced. Of course, we did note that the RBNZ has a history of surprising markets, so we had to stay on our toes and be ready for volatility.

We discussed potential outcomes for both sides of NZD, with our bull scenario arguing a potential move higher in NZD/CHF, given the interest rate divergence and if the RBNZ signaled they will hold onto a restrictive policy stance.

The event was generally a “non-event” but the RBNZ did say that “a restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation” after holding the overnight cash rate at 5.50%.

This outcome plus the sustained trade above the R1 level triggered a long bias, and the market quickly moved to our target around 0.5485 – 0.5500.

The market actually reversed from there as broad risk sentiment began moving net negative as geopolitical tensions in the Middle East rose and traders began pricing in lower odds of Fed rate cuts in 2024.

NZD/CHF moved lower through the rest of the week being driven by the broad environment, returning to early April lows before the Friday close.

We’d rate this strategy discussion as “not likely” to “neutral” towards achieving a positive outcome.

Buying immediately after the RBNZ stayed restrictive was inline with the strategy bias, but broadly holding the pair long without active risk management would have yielded negative results.

Actively managed long positions did have chances to yield positive outcomes, given the strong bounces from the Fibonacci areas mentioned in the original strategy discussion.

On Wednesday, our main target catalyst for the session was the upcoming monetary policy statement from the Bank of Canada, and for bear scenario on the Canadian Dollar, we pair that with a potential bullish move in USD/CAD if U.S. CPI came in hotter-than-expected.

As everyone knows by now, the U.S. CPI came in above expectations and previous reads, prompting traders to reduce odds of Fed rate cuts in 2024, prompting a big rally in the U.S. dollar and USD/CAD ahead of the BOC event.

Soon after, the Bank of Canada (BOC) maintained its overnight rate at 5.00% and kept its quantitative tightening program in April. The outcome was actually a bit mixed for traders as the BOC lowered inflation forecasts while raising the GDP outlook.

BOC Governor Macklem did signal that if the economy did evolve inline with their outlook, they may be confident enough to cut interest rates. 

So, the BOC trigger wasn’t 100% clear but they did hit the markets with some dovish rhetoric and a lower inflation outlook. And with U.S. CPI coming in hot, we think that the fundamental triggers for a long bias on USD/CAD was arguably there. And with the pair already breaking above the consolidation range, that made the pair a candidate for overlaying a long risk management plan.

Given that USD/CAD moved higher through the rest of the week following our triggers, we think the discussion would have been supportive of a potentially positive outcome, mainly due to U.S. Dollar strength on broad geopolitical risk aversion behavior and falling odds of Fed rate cuts. 

Our alternative scenario was a potential bullish move in the Canadian dollar if Governor Tiff Macklem and his team mentioned that it’s “too early” to talk rate cuts, and possibly with the help of oil’s ability to stay bid due to rising Middle East tensions.

We paired this scenario with the euro as there was a possibility of a bearish move if the European Central Bank signaled a potential rate cut in June, as widely expected.

As mentioned in our USD/CAD review above, the BOC held rates at 5.00% and the rhetoric was mixed as they lowered inflation forecasts, signaled an openness to cut, but raised their economic growth numbers. The general reaction in the Loonie was actually net bullish, probably on traders not believing we’ll see slowing inflation given the global trends in recent inflation updates.

The ECB did signal that they’ll likely have enough data in June to be confident enough to cut, but reiterated that they will be data dependent moving forward after holding rates steady on Thursday.

These outcomes were arguably enough to trigger our fundamental short bias on EUR/CAD, and given that there was a downside break of the S1 (1.4720) and S2 (1.4700) Pivot areas, our full bearish lean was triggered.

With the help of rising geopolitical tensions & strong oil rallies to support the Loonie at the end of the week, EUR/CAD moved lower inline with our short bias, arguably making this discussion supportive of positive outcomes, with little need for complex risk and trade management practices.

On Thursday, the European Central Bank’s latest monetary policy statement was the catalyst target of choice, and we focused on a potential bearish euro scenario. We paired this with the British pound with the U.K. set to release GDP growth and manufacturing sector data, and if that data came in above expectations, then EUR/GBP may continue its recent turn lower in price.

As mentioned above, the ECB held rates and signaled a potential cut in June, promptly bringing in net selling into most euro pairs, including EUR/GBP. The U.K. printed net better-than-expected economic data for February, likely drawing in sellers to the pair as well.

So, both fundamental arguments for the short bias was triggered, and with the market already sustainably trading below the Pivot Point area, our expectation was for a move to the S1 area following the U.K. data.

As seen in the chart above, this bearish move after the U.K. data was short-live as broad risk-off aversion sentiment hit the markets, arguably pushing EUR/GBP on Friday. So, the possibility of whether or not this discussion would have lead to a positive outcome would have highly depended on risk & trade management planning and execution.

For those who took profit quickly at the S1 target, they potentially did see a positive outcome, while those held on a short through the rest of the Friday session probably saw a negative outcome. Overall, we’d rate this discussion as “neutral” in being supportive towards a positive outcome given the choppiness in price action following the U.K. data.

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