We put up five short-term FX strategies this week, with three directional calls arguably playing out as we hoped to a degree. Check out our quick recap to see how they played out and how we may be able to improve in the future!
Forex Setup of the Week: Simple NZD/USD Correction Play – May 21, 2023
NZD/USD 2-Hour Forex Charts by TV
At the start of the week, expectations were pretty high that the Reserve Bank of New Zealand would raise interest rates, and with bullish momentum in NZD/USD, we were eyeing the potential for more upside moves in the pair this week.
We did note that technical indicators were signaling bearish vibes at the time, so we noted a dip in the pair was likely and that we’d be watching the 50% Fib for a potential setup to develop.
Unfortunately for NZD/USD bulls, there were no bullish reversal patterns to be found after the Reserve Bank of New Zealand hiked interest rates by 25 bps as expected, but then signaled a pause, which quickly drew in sellers (most likely profit takers after a bullish run for Kiwi in May).
So, no long setup developed for us as the strategy was quickly invalidated with the surprise “dovish hike scenario” playing out.
EUR/AUD: Tuesday – May 23, 2023
EUR/AUD 2-Hour Forex Charts by TV
On Tuesday, EUR/AUD hits the radar with a developing descending triangle in the works, ahead of potential volatile conditions ahead for the euro with the highly anticipated European PMI survey data ahead.
With the market testing the falling ‘highs’ pattern and stochastic signaling potentially oversold conditions at the time, we thought that bulls may look to take charge after either a bounce from triangle support or an upside break or the falling ‘highs’ pattern.
Well, it looks like the bulls did come back with some gumption as the pair broke out of the triangle during the Wednesday Asia trading session. This wasn’t due to the European PMI data (which had little influence on volatility), but more likely due to Aussie weakness as it fell with its close trading partner the Kiwi, which was knocked lower after the “dovish rate hike” from the RBNZ.
AUD/NZD: Wednesday – May 24, 2023
AUD/NZD 2-Hour Forex Charts by TV
AUD/NZD came onto the watchlist on Wednesday as the market retested the top of a descending channel pattern and volatility was expected to stay high after the interest rate and monetary policy statement from the Reserve Bank of New Zealand earlier in the session.
Technical indicators and patterns were signaling a potential reversal setup to watch out for soon, but we didn’t discount the possibility of an upside breakout due to the strong upside momentum sparked by a top tier catalyst.
After finally testing the top of the channel and consolidating, AUD/NZD did eventually break to the upside. And after a brief dip back to the channel pattern, the pair found fresh legs for one more move higher ahead of the weekend.
GBP/USD: Thursday – May 25, 2023
GBP/USD 15-Min Forex Charts by TV
With major potential catalysts ahead for the U.S. dollar and strong themes driving the British pound, we were checking out GBP/USD for a potential short-term move before the weekend.
We noted that volatility was likely to pick up for the pair, especially for the Greenback that had a slew of potential drivers including Core PCE data and debt ceiling talks. And on the other side of the coin, Sterling may draw in more buyers as recent U.K. CPI data reflected a stubborn inflationary environment.
With that fundamental picture of likely rising volatility and likely bullish vibes for Sterling, we’re watching for a floor to form on GBP/USD, and if so, a potential move back up to the falling ‘high’s pattern.
Well, the floor did eventually form during the Thursday U.S. session around our noted 1.2320 potential buy area, and with the help of positive U.S. debt talk developments, better-than-expected U.K. retail sales data, and risk-on vibes, traders did come in to take Sterling higher into the upper half of the channel and nearly retest the 1.2400 major psychological handle on Friday.
USD/CHF: Thursday – May 25, 2023
USD/CHF 2-Hour Forex Charts by TV
We also spotted this textbook technical setup on Thursday on USD/CHF, one that may draw in USD sellers after hearing that Republican lawmakers were leaving to start their holiday weekend without a debt deal.
With this scenario, it looked like the odds of traders taking USD long profits ahead of the weekend would rise, a move that could take USD/CHF lower to the mid-channel area before drawing in some support.
That seems to have been the scenario that played out as USD/CHF fell to the 0.0920 handle on Friday, which seems to have been enough to draw in buyers, especially after the hotter-than-expected U.S. Core PCE read. Congrats if you were able to flow with that strategy and catch some of that 50 pip bounce before the weekend!
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