It was a bit of a challenging week for our FX strategies as top tier catalysts brought on choppy conditions in the latter half of the week, with most markets closing not too far from where they started.
USD/CAD: Monday – June 26, 2023
USD/CAD 2-hour Forex Chart by TV
With U.S. and Canadian inflation updates set to hit this week, we spotted an attractive technical setup on USD/CAD price action. We thought that a retest of the bottom end of a descending channel could attract potential bulls short-term if our expectations as discussed in our Event Guide of a weak Canadian CPI update came to pass.
The market actually did reach the weekly S1 pivot area during the London session ahead of the CPI update, and it looks like CAD sellers were already waiting to make their moves.
The pair quickly bounced higher, likely on traders positioning short ahead of the CPI update, which didn’t disappoint CAD bears as the monthly CPI reads for both headline and core came in below both expectations and previous reads.
It’s also likely that USD bulls had a role to play in USD/CAD strength as well as Tuesday’s slew of U.S. economic updates signaled lower odds of a recession in the States, prompting a strong move in the U.S. dollar.
The rally topped out in the Wednesday session, where’s it been choppy ever since thanks to more top tier U.S. updates.
Overall, this discussion was very effective as the current rate is well above both the targeted support area and posting price.
CAD/JPY: Tuesday – June 27, 2023
CAD/JPY 2-hour Forex Chart by TV
We spotted another potential way to play the likely rise in volatility for the Loonie as Canada was set to release the latest consumer price inflation update.
With the odds of volatility picking up quickly for the Canadian dollar, we thought that the consolidation pattern on CAD/JPY was a setup to watch, especially for a downside break if Canadian inflation data came in below expectations.
As mentioned above, Canada reported that both headline and core inflation rates were slowing more than expected and previous, prompting a swift sell reaction in the Loonie.
But unfortunately for bears on CAD/JPY, risk sentiment was in positive mode on the session thanks to strong U.S. economic updates, limiting and even reversing that initial spike lower.
Bears were persistent thought on CAD/JPY as they took that as another selling opportunity, holding the 109.20 area and reversing the bounce to push the market to roughly 108.70 before the bulls held their ground.
CAD/JPY remained choppy for the rest of the week, ebbing and flowing with broad market volatility and bias, ultimately landing this strategy discussion slightly positive vs. posting price (around 109.30) ahead of the weekend.
AUD/JPY: Wednesday – June 28, 2023
AUD/JPY 1-hour Forex Chart by TV
AUD/JPY hit the watchlist on Wednesday with a textbook technical setup forming as volatility was picking on the pair. The Aussie was the main movement driver after the latest CPI read from Australia, which we thought could have a continued influence on the pair in the short-term.
Our bearish setup to watch was to see if the market would break below the descending triangle pattern formed on the 1-hour chart, a possible price scenario based on the idea that this week’s weak Australia CPI reading makes the further argument that the RBA could hold off on another rate hike in their upcoming July meeting.
And since technicals were mixed at the time, we also discussed the possibility of a bounce as oversold stochastic signals and the major support area could draw in buyers, but with a potential price cap around the falling ‘highs’ pattern.
We did see a downside break of support during the Wednesday session, but the pair turned during the following Asia session, correlating with better-than-expected Australian and Japanese retail sales data updates.
Also, recession fears due to tight global monetary policy seemed to be ebbing as well as the general reaction to the hawkish comments from ECB Forum on Central Banking on Wednesday was rather muted.
With risk sentiment leaning positive for the rest of the week, it looks like this strategy discussion didn’t work out as expected for the bears as they lost the falling ‘highs’ pattern to the bulls on Friday, giving AUD/JPY a slight gain for the bulls on the week.
GBP/AUD: Thursday – June 29, 2023
GBP/AUD 30-min Forex Chart by TV
On Thursday, we spotted a strong technical argument in GBP/AUD as a mix of Fibonacci levels, oversold stochastic signal, and broken resistance area had the potential to draw in buyers into the established uptrend.
This made sense from a fundamental standpoint with the recent weaker-than-expected Australian CPI shifting the fundamental picture a little less bullish, and the commonly held opinion that the Bank of England needs to stay aggressive with rate hikes to fight persistent high inflation conditions.
But we also saw the possibility that the upcoming round of PMI readings from China could spark volatility and a bullish reaction for AUD, so we kept an open mind to the possibility of a downside break in the uptrend as well.
As mentioned in the above AUD/JPY recap, positive Australian updates and general broad risk sentiment shift towards positive turned Aussie sentiment early in the Thursday Asia session.
China’s PMI update came in mixed with services sector still expanding vs. contractionary conditions in manufacturing, which seemed to correlate with a quick move lower on the pair.
Overall, GBP/AUD was pretty choppy after our original discussion, still trading around the Fibonacci and moving averages heading into the weekend. This consolidation may continue into next week, where will likely see the next real move for the pair after the Reserve Bank of Australia’s latest monetary policy statement on July 4. Stay tuned!
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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