The event calendar was packed for the FX space and our strategists managed to put together several effective ideas this week! Check out our recap and let us know how you did!
AUD/USD: Monday – July 3, 2023
AUD/USD 30-Min Forex Chart by TV
To start off the week, we focused on the upcoming monetary policy decision from the Reserve Bank of Australia and AUD/USD. Our Event Guide for the RBA statement showed that market expectations were that the RBA would raise by another 25 bps and may signal further tightening ahead.
Our thought was that if the RBA did raise interest rate by 25 bps, then that could attract Aussie buyers, potentially turning the rising ‘lows’ restest into a support area once again on AUD/USD.
We also discussed the possibility of the RBA holding at 4.10%, which points us to the strategy of a potential downturn in the Aussie on the event. In that scenario, our idea was to watch for a “break-and-retest” scenario before the possibility of AUD/USD moving towards a target area of 0.6600 to 0.6620.
The second scenario discussed above seems to have been the one that played out with the RBA holding at 4.10%, but with a bit more volatility as AUD/USD climbed as high 0.6705 before the bear took control and eventually took the market down to our target area of 0.6600.
For those who leaned bearish after the rate hold and risk managed well, the outcome should have been very favorable.
AUD/JPY: Tuesday – July 4, 2023
AUD/JPY 30-Min Forex Chart by TV
After the RBA hiked interest rates once again in Australia, AUD actually spiked to the downside, likely a reaction to commentary that signaled the RBA thought that inflation has passed its peak.
This spike lower actually found support quickly, drawing in enough buyers to not only hold the 96.00 major psychological area, but sparked a reversal back to pre-RBA announcement levels!
From there, we were closely watching the 96.60 for potential resistance to form, possibly on the idea that traders with recession expectations (as well as long-shot speculation the BOJ are getting uncomfortable with JPY weakness) could short around that strong resistance area.
We were also aware of the idea that the FOMC meeting minutes could have an influence on AUD/JPY as well through USD/JPY. Hawkish rhetoric from the meeting minutes could spark a bullish reaction in USD/JPY and potentially drag the rest of the yen pairs higher with it.
The targeted 96.60 resistance was able to hold and as risk sentiment turned big time on Wednesday, AUD/JPY began to draw in JPY buyers as another round of disappointing global PMI updates signaled weakening economic conditions.
From there, it was a stair step move to the downside through the rest of the week, with AUD/JPY eventually 94.73, nearly 200 pips from the 96.60 resistance area. Congrats to those who risk managed this pair to the downside this week!
USD/CAD: Wednesday – July 5, 2023
USD/CAD 30-Min Forex Chart by TV
On Wednesday, we spotted this textbook downtrend setup on USD/CAD, with several technical arguments that favored the bears in the short-term. But it also warranted a potential look as a bullish area to watch given the major catalysts ahead, including our catalyst of focus, the FOMC meeting minutes.
Volatility picked up quickly during the Wednesday London session, arguably a reaction in broad risk sentiment to another round of business survey updates from Europe and China.
This time it was an update to services sector sentiment, and it wasn’t looking too pretty as businesses saw continued price pressures against falling demand for services.
The U.S. dollar picked up bulls (likely “safe haven” buyers) on the slight shift into risk aversion sentiment, and there was no help from oil for CAD, as oil prices rallied in the session. FOMC meeting minutes didn’t reveal an new insights, so that seemed to be a non-factor based on the price reaction.
Regardless, USD/CAD had enough momentum and volatility to break the descending channel on the session, and really didn’t look back until Friday as risk sentiment stayed negative thanks to rising expectations of higher interest rates.
USD/CAD settled down roughly around the 1.3365 handle on Thursday before the highly anticipated U.S. Non-Farm Payrolls and Canadian employment reports on Friday.
USD/CHF: Thursday – July 6, 2023
USD/CHF 30-Min Forex Chart by TV
On Thursday, we’re checking out the rising channel on USD/CHF as a way to potentially play the upcoming U.S. employment data (e.g., private payrolls, job cuts, initial jobless claims, etc.). The pair was retesting the bottom of a rising channel, which could attract traders from both sides.
Expectations at the time were that U.S. initial jobless claims, the ADP report, Challenger job cuts, and JOLTS job orders scheduled will likely show a weakening U.S. jobs environment, and if that was the case, USD/CHF could weaken.
But we decided to stick with the hawkish Fed narrative, leaning towards a short-term bullish move that could see USD/CHF bounce from the rising lows to the 0.8980 – 0.9000 area. It’s there we would likely consider closing to avoid U.S. NFP volatility.
Looks like luck shined upon us as Thursday’s round of U.S. jobs data came out extremely strong, pushing USD/CHF up to our 0.8990 – 0.9000 target area within just a couple of hours. But it was there that USD/CHF bears took command, likely due to rising rate hike fears sparking strong safe haven flows on the session.
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