Premium Watchlist Recap: Nov. 4 – 5, 2024

This week our currency strategists focused on the Reserve Bank of Australia’s monetary policy statement and New Zealand’s employment report for potential high-quality setups.

Of the eight scenario/price forecast discussions this week, Arguably, two discussions saw both financial and technical arguments raised They become potential candidates for overlay trading and risk management. Check out our review of those discussions to find out what happened!

Watchlists are price predictions and strategy discussions supported by fundamental and technical analysis, and are a crucial step towards creating an account High quality discretionary business idea Before working on a risk management and trading plan.

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On Tuesday, our strategists set their sights on the Reserve Bank of Australia’s monetary policy statement and its potential impact on the Australian dollar. Based on our events guide, expectations were that the RBA would keep interest rates steady at 4.35%, with markets looking for signals on the direction of future policy. With these expectations in mind, here’s what we were thinking:

“Australian Progress” scenario:

If the RBA maintains its hawkish stance or shows increasing concern about persistent inflation, we expect this to strengthen the Australian dollar. We focused on the AUD/NZD for potential long strategies if risk sentiment is completely negative, especially in light of the RBNZ’s recent dovish shift with interest rate cuts. In a risk-laden environment, the AUD/CHF pair looked promising for extended periods given the SNB’s recent dovish stance and its plans to cut interest rates.

“Australian collapse” scenario:

If the RBA signals a shift towards lower interest rates or expresses increased concerns about growth, we thought this could weigh on the Australian dollar. We viewed the AUD/CAD pair as potential selling strategies in a risk-off environment, especially in light of the pair’s position near resistance and the Bank of Canada’s recent comments on continuing bearish. If risk sentiment remains positive, the EUR/AUD pair has long made sense given ECB members’ concerns about persistent inflation.

What actually happened

The Reserve Bank of Australia kept interest rates steady at 4.35% as expected and maintained a noticeably hawkish stance. Key points of the statement:

• The recognized headline inflation rate fell but he warned it could rise again as the cost of living declines
• Core inflation “remains very high” and will take until 2026 to reach the target
• Employment conditions remain strict for full employment
• Reserve Bank of Australia members remain ‘vigilant to upside risks to inflation’

Governor Bullock reinforced her hawkish tone in her press conference, emphasizing that “interest rates should remain restrained for now” while noting that no clear interest rate changes were discussed.

Market reaction

This result essentially sparked our bullish scenarios for the Australian dollar, and with risk appetite tilting positive following Trump’s election win, the AUD/CHF was our pair to watch.

Looking at the AUD/CHF chart, we saw immediate buying interest after the RBA event around the 0.5700 pivot point. The pair rose steadily during European trade, testing the 61.8% Fibonacci retracement level near 0.5760 as Governor Bullock’s hawkish comments fueled the bullish momentum.

Helped by broad risk sentiment following the US presidential election, the AUD/CHF reached October highs in the 0.5800-0.5840 zone (our second potential profit zone), although it pulled back on Friday on broad-based USD strength and the prospect of lower rates. American interest. Chinese trade concerns weighed on risk assets.

Judgment

So, how do we do? Our fundamental analysis expected the Australian dollar to strengthen due to the Reserve Bank of Australia’s hawkish stance, which happened as hoped. While our technical analysis pinpointed two target areas, both were beaten thanks to the broad risk environment.

If traders enter long positions near the pivot point after the RBA’s hawkish decision and press conference, it may be possible to make a strong move higher. But the implementation of the trade management plan was likely a factor in the outcome given Friday’s big pullback brought back half of the week’s rise.

Overall, we believe this discussion is “very likely” to support a net positive outcome as fundamental and technical catalysts are well aligned, we have seen strong positive momentum, and the potential target resistance areas discussed have been hit.

On Wednesday, our strategists set their sights on the New Zealand jobs report for Q3 2024 and its potential impact on the New Zealand dollar. Based on our events guide, employment was expected to decline by 0.4% quarter-on-quarter and the unemployment rate to rise to 5.0% from 4.6%, while the Labor Cost Index was expected to show an increase of 0.7%. With these expectations in mind, here’s what we were thinking:

“Kiwi climbing” scenario:

If jobs data comes in stronger than expected, we expect this will dampen hopes of a rate cut from the Reserve Bank of New Zealand in the near term. We focused on NZD/CHF for potential long strategies if risk appetite is positive, especially in light of SNB President Schlegel’s recent comments about cutting interest rates and limiting franc strength. In a risk-off environment, the NZD/CAD was our long option given the Bank of Canada’s recent dovish shift and 50 basis point interest rate cut in October.

“Kiwi Collapse” scenario:

If New Zealand’s labor market showed significant weakness, we thought this could feed into expectations of an accommodative RBNZ. In this case, we viewed NZD/USD as potential selling strategies in a risk-off environment, especially given low expectations of sharp interest rate cuts from the Fed. If risk sentiment is positive, EUR/NZD has long made sense given the ECB’s less pessimistic stance on gradual policy easing.

What actually happened:

The jobs report for the third quarter of 2024 showed a mixed picture:

• Employment decreased by -0.5% QoQ (vs. 0.1% expected)
• Unemployment rate rose to 4.8% (vs. 4.7% expected)
• Labor force participation rate fell to 71.2% from 71.7%
• Job gains in the second quarter were revised from 0.4% to 0.2%.

However, wage growth remained strong:

• Labor cost index rose 0.6% QoQ (vs. 0.9% forecast)
• Average hourly wages rose 3.9% year over year to $41.98
• Public sector wages showed particularly strong growth of 5.1% year-on-year

Market reaction:

This result essentially triggered our bullish NZD scenarios, as continued wage growth reduces the likelihood of aggressive easing by the RBNZ. With risk appetite turning positive early in the Asian session, the NZD/CHF pair has become our focus.

Looking at the NZD/CHF chart, the pair initially found support just above the pivot point (0.5172) during the pre-release consolidation period. After the data hit the wires, the bulls pushed the pair through the R1 level (0.5208), eventually testing the R2 level (0.5239) during the European session.

The advance was supported by broader risk flows following a positive reaction to the US presidential election and strong Chinese trade data later in the week, although the pair faced resistance above the R2 pivot level and the minor psychological level at 0.5250. There will likely be some profit-taking ahead of the weekend, but NZD/CHF held most of its gains at the weekly close.

Verdict:

So, how do we do? Our original discussion was “most likely” supportive of a net positive outcome. Fundamental stimulus was mixed but reaction in NZD suggests less urgency for RBNZ easing. Our technical analysis aims to retest the S1 pivot support area, which we did not obtain given where the market was at the time of the event release.

But for those who adapted a trading plan to that and saw support forming at the pivot point/confluence of the moving averages, it is very likely that they would have made the strong rally in the NZD/CHF this week, well above the daily long-term average of 45. a point.

As with the AUD/CHF above, the final outcome would have depended on the trade plan and execution, as the AUD/CHF also fell on Friday.