It was another busy week for our FX strategists with top tier catalysts all throughout the forex calendar.
And it was another effective week for our strategies with arguably three out of four fundamentally/technically supported ideas moving in our favor, including a strong end-of-week push higher in USD/JPY.
Forex Setup of the Week: GBP/AUD’s Potential Reversal Near a Range Resistance
GBP/AUD 2-hour Forex Chart by TV
To start the week, we took at look at GBP/AUD as Sterling had a couple of major catalysts ahead, discussing both bearish and bullish setups. The discussion was mainly focused on the the price action and technical arguments as we wanted to stick with a neutral fundamental bias until U.K. CPI & the Bank of England’s latest interest rate and monetary policy statement came out later in the week.
And as you can see on the chart above, it looks like the bulls won out this week, likely due to a mix of factors drawing in net bullish pound fundamental traders (likely due to the hot U.K. inflation print and bigger-than-expected BOE rate hike), but also some Aussie sellers, most likely on the broad risk-off vibes and negative updates from China and Australia near the start of the week.
On the chart above, we can see that the bullish scenario we discussed (upside range consolidation break) played out, drawing in technical traders with the fundamental traders to push GBP/AUD much higher this week to nearly retest the 1.9100 handle, well above the consolidation range by about two daily ATRs.
AUD/JPY: Tuesday – June 20, 2023
AUD/JPY 30-minute Forex Chart by TV
On Tuesday, we saw AUD/JPY volatility jumping, a reaction to headlines from the People’s Bank of China (PBOC) and the Reserve Bank of Australia’s (RBA) meeting minutes. It looks like traders took both events as potentially bad news for broad risk sentiment and risk-on assets, prompting a swift move lower in AUD/JPY.
We viewed this development as a potential short-term selling opportunity on AUD/JPY, but after the immediate swift move lower on the news events, we thought that buyers may come in to take some profits and/or take a shot at the longer-term uptrend at a better price.
So we thought that waiting for a bounce before considering a short play made sense, with the potential resistance area coming around the area between the S1 Pivot level (96.77) and the day’s Pivot point of 97.22.
After our discussion, AUD/JPY continued to drop further before finding an intra-week bottom just above the 95.50 minor psychological level, followed by a slow grind higher through Thursday.
It wasn’t until Friday that the pair hit our targeted resistance area for potential short entry, which did draw in net sellers. These players were likely a mix of both technical players shorting the previous strong area of interest (blue bar highlight) and fundamental players selling risk assets in expectation/reaction to weak flash PMIs, including the weaker-than-expected PMI update from Australia.
The outcome was a solid one day move back to the 95.50 where the pair found support (likely profit taking ahead of the weekend) once again.
GBP/USD: Wednesday – June 21, 2023
GBP/USD 30-minute Forex Chart by TV
On Wednesday, GBP/USD popped up on the radar after a big jump in volatility during the London trading session. Sterling traders reacted to the latest U.K. inflation update, hot once again and drawing in short-term bulls before hitting a wall and reversing to the downside after not too long after the event.
After finding resistance and reversing around the falling ‘highs’ pattern and 200 SMA on the 15-minute chart, we thought the chances were high that the BOE would hike interest rates aggressively, which ultimately could be bad for the U.K. economy and draw in Sterling fundie bears. We also had expectations that Fed Chair Powell’s upcoming testimony to Congress would have a hawkish tone.
After our post, it turned out that GBP/USD bears were able to stay in control, essentially riding that lower ‘highs’ pattern down all the way through Friday. This was the case despite a surprise 50 bps rate hike from the Bank of England on Thursday, signaling that traders were indeed more worried about rising recession odds than trying to play the idea of higher interest rates drawing more buyers into the currency.
From a risk management perspective, there were multiple opportunities to short the downtrend and play the scenario discussion in our original discussion. Congrats if you were able to grab some pips in what was a pretty volatile week for Cable.
USD/JPY: Thursday – June 22, 2023
USD/JPY 15-minute Forex Chart by TV
On Thursday, we spotted consolidation and support forming in a USD/JPY uptrend against multiple chart arguments that may potentially draw in buyers, a high probability setup IF Fed Governor Powell’s testimony does not “wildy backtrack” from strong expectations that the Fed will continue to hike this year.
We thought that if the buyers did step in around the technical mix of rising lows, rising moving averages, and Fibonacci retracement levels (roughly between 141.50 to 142.00), there was a possibility that it could reach previous highs around the 142.50 psychological level.
Well, Fed speak did stay hawkish through the end of the week, but the rhetoric came from Fed members Bowman and Daly, citing a high likelihood of more interest rate hikes to come in 2023. An argument can also be made that the latest Japanese PMI update may have drawn in fundamental bears as it signaled contractionary conditions for June, while U.S. bulls were likely focusing on the strong services PMI data from the U.S.
All put together, these were the likely catalysts that took USD/JPY way higher on Friday, far above our original 142.50 resistance target to nearly test 144.00 before the Friday close. A massive one day run and congrats to all of you USD/JPY bulls out there.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.
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