Our forex strategists were feeling the comdolence this week, focusing on key inflation updates from Australia and Canada.
Of the four scenario/price outlook discussions this week, Two discussions saw both financial and technical arguments raised To become a potential candidate for risk management. Check out our review of this discussion to see what happened!
Watchlists are discussions about price forecasts and strategies supported by fundamental and technical analysis, and are a crucial step towards creating… High quality discretionary business idea Before working on a risk management and trading plan.
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EUR/CAD 1 Hour Forex Chart by TradingView
Our strategists began Monday with a look at the Canadian dollar, focusing on the upcoming Canadian CPI update as the catalyst for potential big moves in the CAD.
According to our event guide for the Canadian CPI release, expectations were for the latest data to point to a continuation of the slowing trend in inflation growth, supporting recent market expectations for a Bank of Canada rate cut in July.
If this scenario plays out, we would watch for a bullish breakout of the descending triangle developing on USD/CAD in short CAD setups. Now, if the latest Canadian CPI surprises the markets with a hotter reading, we would have a bearish EUR/CAD on our watchlist for a bullish CAD move, a good match given the recent weak PMI and political uncertainty from the Eurozone. The potential to keep the Euro bulls in play.
Good, Canada’s CPI update came hotter than expected as headline inflation accelerated from 2.7% year-on-year to 2.9% in May. This led to a significant rally in the Canadian dollar immediately after the jump, and with it still trading below the secondary psychological zone at 1.4650, our fundamental and technical short arguments were triggered in the process.
But the rise did not last long, as half of the move fell within the first hour, then gave up more as the week progressed. This is likely due to the strength of the euro as ECB officials downplayed expectations of interest rate cuts this week and not to “buy the rumours, sell the news” behaviour, given the broad move higher in the euro starting on Wednesday.
So timing, risk management and trade management were very big factors in whether this discussion was supportive of a net positive outcome. We mentioned that the EUR/CAD could move higher ahead of the Canadian CPI, which it did, and for those who sold there after the resistance was formed, they are likely to see very positive results, especially if they take profit shortly after the CPI release.
For those who sell immediately after the event, they will likely have seen a net negative result, again, depending heavily on the trade structure used. For those who waited and sold later in the week after the bounce, odds are that risk managers saw a small net positive result.
Overall, with markets reacting as expected after the event, but choppy price action and Euro strength shaping up, we’d say this discussion was likely “neutral to net negative” in support of a potentially positive outcome.
EUR/AUD 1 Hour Forex Chart by TradingViewp
On Tuesday, the Australian dollar rose to the top of the watchlist as the latest CPI update from Australia was just around the corner. Our event guide to the Australian CPI update showed that the latest data pointed to a finding that inflation remained “firmly” high in May.
If this is the outcome, our strategists would be watching the EUR/AUD downtrend for a potential long play on the AUD, again, due to recent weak Eurozone PMIs which are likely to keep the Euro rate cut speculation alive.
In a scenario where Australian CPI data showed a decline in inflation (potentially reducing the odds of the RBA keeping interest rates high), we then switched to AUD/USD for a sell setup on the Australian dollar, given current expectations that the RBA The Fed will have to make smaller interest rate cuts in 2024 than previously thought.
Well, the big day for the Australian dollar has arrived, and as expected, inflation data showed not only a high inflation environment in the Land Down Under, but prices grew at a faster than expected pace of 4.0% – the highest level in six months!
This clearly supports the RBA’s potential hawkish rhetoric, so it was no surprise that the Australian dollar rose against all the major currencies, and this is perhaps why the Australian dollar closed as the best performer this week among the major currencies.
In EUR/AUD specifically, the pair rallied lower on the initial release, then attracted more sellers in the next five hours before finding support just above the S1 pivotal support level, and as broad-based Euro strength began to develop.
The strength in the euro was enough to bring the pair back to pre-Australian CPI levels and the weekly pivot point area, which appeared to be a strong selling area as traders pushed the pair lower quickly on Friday, possibly due to the shift in monetary policy. / The RBA/ECB interest rate divergence ahead of the weekly close.
Just as with the EUR/CAD pair above, with volatile price action following the event, risk and trade management were a factor in determining whether this discussion was supportive of a positive outcome or not. Given that there was time to sell after the event and capture that entire move lower, as well as another opportunity to sell at the pivot point after the euro rose, we would say this discussion was “neutral to likely” being supportive of a net positive outcome.
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