Premium Forex Watch Recaps: Sept. 9 – 10, 2024

Our currency strategists this week focused on the UK jobs update and US CPI update for potential high-quality setups.

Of the four scenario/price outlook discussions this week, It can be said that both discussions witnessed the raising of fundamental and technical arguments. To become a potential candidate for Trade and Risk Management. Check out our review of these discussions to see what happened!

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On Monday, our strategists focused on the UK employment update for September 2024 and its potential impact on the pound. Based on our event guide, the outlook was mixed, with the change in jobless claims expected to ease from 135k to 21k, the unemployment rate expected to hold steady at 4.2%, and average earnings growth expected to slow from 5.4% to 4.9%.

With these expectations in mind, here’s what we were thinking:

“GBP Rise” Scenario:

If employment data comes in stronger than expected, especially with jobless claims falling and wage growth steady or higher, we would expect this to attract buyers eager to strengthen the pound. We have been focusing on the GBP/AUD pair for potential long strategies, especially given the pair’s recent upward momentum in September and recent growth concerns from China that have weighed on the Australian dollar.

If the UK jobs data disappoints, essentially showing a rise in unemployment or a significant slowdown in wage growth, we believe this could weaken the pound. In this case, we look at the GBP/JPY pair as a potential selling strategy, given the recent strength in the yen and expectations of a rate hike by the Bank of Japan.

What does the data say?

UK jobs data presented a mixed picture with unemployment falling but wage growth slowing to a high of 4.0%. Overall, this update was more positive than markets had expected, based on the reaction in sterling.

The initial market response to the UK jobs data was slightly positive for the pound against all major currencies, especially the “safe havens”. This was essentially in line with the “GBP bull” scenario for GBP/AUD. As for our technical arguments, we have pointed to a sustainable bullish breakout scenario and a pullback scenario to watch out for.

The initial reaction pushed GBP/AUD into our bullish watch area at 1.9700, but that was the bearish turning point for the pair, thanks to the UK’s net negative economic activity update on Wednesday.

This pushed the market into the support area we are watching, between 1.9550 and 1.9600. But thanks to a weak update on UK economic activity, the bulls didn’t really step in until the key psychological level of 1.9500 was tested. There, a double bottom was formed, creating a technical signal that the bulls may be regaining control.

The verdict

So how did we fare? In our original discussion, we mentioned potential long GBP/AUD if the UK employment data came in net positive, which it did. The bearish scenario played out, but with the weak UK net economic activity update somewhat canceling out our underlying bullish bias after the slightly positive UK net jobs update, it’s hard to say this was a quality long setup.

But for those who considered playing long around the potential support area of ​​1.9550 – 1.9600 without waiting for bullish reversal patterns, the discussion was likely “unlikely” to support a net positive outcome.

For more skilled traders who waited for a bullish double bottom at 1.9500 to form before taking a long bias, the discussion is “likely” to be supportive of a net positive outcome.

total, We rate this discussion as “unlikely” to “neutral” as real-time adjustments to the UK GDP update and subsequent price action have made the trade management plan and execution a significant factor in the likely outcome.

On Tuesday, our strategists watched the upcoming US CPI report and its potential implications for the US dollar. Based on our CPI event guide, markets were expecting headline inflation to come in at +0.2% m/m and +2.7% y/y, with core inflation at +0.3% m/m and +3.2% y/y. With these expectations in mind and considering the potential implications of recent economic events, here’s what we were thinking:

If the CPI comes in as expected or higher, we may conclude that the Fed may be inclined to cut interest rates by 25 basis points in September. This could attract major USD buyers, and with the Bank of Canada recently cutting rates and signaling further easing, we are watching the USD/CAD pair as a potential long-term strategy.

If US inflation comes in much lower than expected, we may consider a 50bp rate cut. This could be a good time for USD sellers to shine, prompting us to take a look at EUR/USD given the pair’s recent bullish trend and if Thursday’s ECB policy decision is less dovish than expected.

Well, ladies and gentlemen, it’s Wednesday, and the US Consumer Price Index has decided to give us a mixed bag of numbers. The core CPI showed an increase of 0.2% on a monthly basis, as expected. below market estimates of 2.7% and the slowest pace since March 2021.

However, Core CPI (excluding food and energy) rose from 0.2% to 0.3% on a monthly basis.Annual core inflation expectations were in line with expectations, remaining stable at 3.2%, also in line with expectations.

The higher-than-expected monthly core CPI reading caught the market’s attention, showing continued inflationary pressures in key areas such as shelter costs, airline fares and motor vehicle insurance.

The initial market reaction was swift, with the US dollar seeing a sharp but short-lived rally across the board. Looking at the USD/CAD chart, we can see that the pair actually saw an immediate rebound after the CPI release, rising from around the 1.3575 level towards the first target, the R1 pivotal resistance point at 1.3613.

However, the pair’s upward momentum was moderated somewhat by broader market dynamics. Sentiments that initially supported the dollar after the initial volatility have started to ease. Additionally, the prospect of a 50bp rate cut by the Fed is likely to cap the dollar’s ​​gains.

Interestingly, the chart shows that after the initial rise, the USD/CAD pair retreated, probably due to some profit-taking and repositioning ahead of the US PPI data due out the following day. The pair found support around the pivot point (PP) at 1.3540, which coincides with an uptrend line that has been in place since early September.

By Thursday, we saw another rally in the USD/CAD pair after the US PPI and weekly jobless claims data came in positive for the dollar. This helped the pair find support as the price moved according to the rising moving averages and the broken resistance area at 1.3575.

The verdict

So, how did we do? In our original discussion, we mentioned potential buying in USD/CAD if the US CPI came in line with expectations or higher, which it partially did (Core CPI).

After the news, the market moved towards our first target that we discussed, but the market was limited there. There were also several opportunities to buy after the pullbacks, although the successive rallies were less sharp thanks to the rise in expectations of a 50 basis point rate cut by the Fed at the end of the week.

total, In support of a possible positive outcome because while the strategy and outcome worked in favor of the basic buy, the upward movement was limited and Individual trading execution and risk management decisions were certainly critical factors in the final outcome.