Our FX strategists had a solid week with two out of two solid strategies moved in their favor, while the other two were quickly invalidated by fundamental data.
Read on to see more of how they did in what was a very busy week, especially for the U.S. dollar!
On Monday, we were leaning bullish on AUD/USD after action in China to support their economy and better-than-expected retail sales data from Australia. From the U.S. dollar side, last Friday’s price action suggested that traders saw Fed Chair Powell’s Jackson Hole speech as “not as hawkish,” sentiment that could carry over into the new week.
From a technical analysis standpoint, AUD/USD bulls were holding the 0.6380 support area like champs and the 100SMA crossed above the 200SMA, a combo that could potentially draw in profit taking from short positions and/or fresh anti-dollar traders.
We suggested several price behavior scenarios to watch before considering a long risk management plan, but probably the best outcome likely came from a scenario that we didn’t suggest, which was a pullback to the support area.
AUD/USD dropped to the 0.6400 major psychological handle once again on Tuesday, and with the help of weaker-than-expected U.S. data the pair ripped higher and never really looked back.
From that point on, the 0.6450 minor psychological drew in support all week, giving bulls multiple opportunities to play USD weakness.
Overall, the outcome was arguably positive for our original discussion, with the degree of the outcome likely more dependent on how this was risk managed given that the bullish move was limited to the 0.6500 major psychological handle and price action was very choppy.
On Tuesday, we checked out USD/CHF as the pair was trending higher on the 1-hour chart. Our major catalyst of focus for potential volatility was the fast approaching U.S. consumer conference and job openings data.
Our thought was that if the U.S. data came in above expectations then that could try and further buy into the uptrend in USD/CHF, with rising odds of success if the pair dipped further to the rising moving averages and Fibonacci levels and bullish reversal patterns appeared.
Unfortunately our price bias was fundamentally invalidated just a few hours laters as both the U.S. consumer confidence and job openings numbers came in below expectations, supporting/drawing in traders who are speculating that the Fed is less likely to stay hawkish on interest rate policy at their upcoming monetary policy statement.
USD/CHF actually fell significantly on the date releases, breaking below our targeted support area for a potential entry (had the U.S. data came in positive), and tested the bottom of the rising channel. After a bit of extra volatility there, buyers came in to hold the rising channel despite a broadly bearish week for the Greenback.
Overall, we focused on the possibility of positive U.S. fundamentals to align with the price trend, and the volatility was greater than expected, which were both tactical errors on our part. But our anticipated price moves generally played out as expected (i.e., pullback before returning to the uptrend), likely on the bigger theme of monetary/interest rate policy divergence between the Fed and Swiss National Bank drawing in longer-term fundamental buyers.
The outcome of this strategy discussion could have gone either way, highly dependent on the risk management plan executed and adaptability to the economic data. But for us, after the U.S. data came out weaker-than-expected, the price strategy was invalidated right away.
EUR/USD shot to the top of our watchlist on Wednesday after it broke a falling ‘highs’ pattern thanks to broad USD weakness on Tuesday. Based on our analysis, we thought that the ECB’s recent hawkish rhetoric would keep a bid under the euro for the session, while the fresh weak U.S. economic data may draw in further USD selling.
With that line of thinking, our base case for price action was that a shallow dip may be in the cards for the session (possibly off of German and Spanish CPI reports), which could quickly draw in fundie buyers to play the major themes.
We were also keeping an eye on U.S. private employment and preliminary GDP data as potential catalysts to watch as they would likely help our price outlook bias if they came in weaker-than-expected.
Fortunately for our strategy idea both the ADP and GDP numbers did come in weaker-than-expected prompting sell pressure on the U.S. dollar during the U.S. trading session. There were actually enough traders to push the pair quickly up to our extended target area between 1.0930 – 1.0950 before topping out.
This strategy likely worked out very well if it was in the risk management plan to take profits at the target area. If that wasn’t in the plan, then it’s likely this strat isn’t working out positively after the broad euro selloff on Thursday and the Greenback’s steadiness after Friday’s somewhat mixed U.S. jobs and manufacturing PMI updates.
On Thursday, our FX strategists were checking out EUR/JPY and how recent hawkish ECB rhetoric seems to be the narrative driving the euro higher. But we wanted to wait and see what the latest economic data from Europe was going to give us before trying to jump in the uptrend.
Our thought was that IF Euro area CPI, ECB meeting minutes and German economic updates supported the ECB’s likely move to raise rates further this month, then we’d look for a pullback and bullish reversal patterns on EUR/JPY to play the uptrend.
Well, Euro area Flash CPI came in higher-than-expected while Germany’s jobs and retail sales data disappointed bigly! All combined, this data outcome had a very negative impact on the euro, signaling that traders were focusing more on the idea that if the ECB hikes further, there’s higher chances of recession ahead for the Euro area.
This invalidated our long price bias on EUR/JPY, a scenario that was soon solidified with an extreme bearish candle break of our discussed technical analysis setup, making this a no-go right from the European open.
For those watching the data live and adapted to the Euro area data and the market reaction, then maybe you combined the weak data and bearish break of the rising trendline pattern, and risk managed into a short position.
If so, then it’s likely you did very well as EUR/JPY essentially reversed and saw massive bearish pressure through the rest of the week.
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