It was a strong week from our FX strategists as three out of five price scenarios arguably played out in our favor, including an expected strong bearish move on AUD/USD.
Check out our quick recaps and let us know how you did this week in the comment section below!
Forex Setup of the Week: EUR/USD’s Trend Pullback Ahead Of CPI & NFP Reports
EUR/USD Daily Forex Chart by TV
On Monday, we spotted a longer-term setup on EUR/USD as it retested a major trendline on the daily chart, ahead of potential catalysts from both the Eurozone and the U.S.
We were leaning bearish on the Greenback on the potential for some profit taking after, but we were also open to the idea that the next move from the major technical area would likely depend on the latest Eurozone CPI data and the U.S. Non-Farm Payrolls report.
Unfortunately, this week’s catalysts did not lead to a longer-term momentum break as USD traders couldn’t settle on direction, trying to balance risk-on vibes (thanks to the U.S. likely avoiding debt default), weak U.S. business survey data, strong jobs numbers, and rhetoric from Fed officials of a potential rate hike “skip” for June.
Eurozone CPI data came in weaker-than-expected, along with another round of weak Eurozone PMI data, to put pressure on the euro. This may eventually lead to a sustained downside break on the Daily chart above if USD traders focus on the idea that May’s stronger-than-expected U.S. employment read may lead to more Fed rate hikes ahead.
AUD/JPY: Tuesday – May 30, 2023
AUD/JPY 2-Hour Forex Chart by TV
On Tuesday, AUD/JPY sprung up to the top of the watchlist as the tight consolidation into an ascending triangle pattern was a great setup to watch ahead of the Australian CPI data.
We were looking for a bearish break of the triangle during/after the CPI release to potentially draw in more technical sellers, and some fundamental sellers of Aussie if the CPI number came in below expectations, as it did in the past three releases.
AUD/JPY actually dropped not too long after we put it on the watchlist, likely kicked off by the broad risk-off sentiment during the Tuesday U.S. session. This was arguably on uncertainty on whether or not the new debt-limit legislation would actually get passed due to very vocal opponents of the deal sounding off early in the week.
AUD/JPY bears then got another boost in the following Asia session after traders ignored the better-than-expected Australian CPI data to focus on the surprise weakness from China’s latest manufacturing PMI read.
Through it all, our price expectations on AUD/JPY played out well as the pair broke the triangle and made it’s way to our first floor target at S1 Pivot (90.78), and even moved lower to 90.27 before bottoming out.
AUD/USD: Tuesday – May 30, 2023
AUD/USD 2-Hour Forex Chart by TV
Aside from our strategy on AUD/JPY above, we were also looking at AUD/USD for potential downside moves ahead of the Aussie CPI event.
The pair was already testing the top of a short-term channel, as well as the R1 Pivot point area, a setup that had the potential to draw in technical USD bulls as well as fundamental players looking to short the Aussie based on our discussion around Australian CPI data.
This worked out pretty well as the market failed to break the top of the channel twice, also giving two opportunities for sellers to take solid short-term profits ahead of the turn of the month.
As mentioned above, Australian CPI came in better-than-expected, but like previous releases, the Aussie still fell, mostly likely due to the surprise weak PMI read from China to shift broad risk sentiment towards aversion on the session (likely benefiting USD along the way).
This was a pretty big intraweek move so congrats if you were able to risk manage around this strategy and catch those pips!
EUR/JPY: Wednesday – May 31, 2023
EUR/JPY 2-Hour Forex Chart by TV
EUR/JPY broke a textbook chart pattern on Wednesday, fueled by a combination of both broad risk-off vibes and yen strength. With the move likely being driven by the weaker-than-expected China PMI data and an unscheduled meeting between Japanese finance officials rattling the markets a bit. We thought the setup could potentially draw in more sellers, especially if Eurozone’s flash CPI came in below expectations.
Well, not only did Eurozone CPI data come in weaker, but Eurozone PMI’s also signaled continued contractionary conditions, likely drawing in some extra euro selling pressure from news algos and fundie traders.
This downside move didn’t last long as broad risk sentiment shifted on Wednesday, arguably on rising optimism that the U.S. will avoid a debt default scenario, and possibly in reaction to Federal Reserve member speeches on Wednesday, signaling the possibility of the Fed skipping a rate hike at the upcoming June meeting.
From the time of posting to the broad risk sentiment shift, EUR/JPY did manage to fall rough 100 pips; congrats if you were able to catch fast, intraday pips on that move.
AUD/JPY: Thursday – June 1, 2023
AUD/JPY 2-Hour Forex Chart by TV
On Thursday, we circled back to AUD/JPY, which broke lower as we hoped and hit Tuesday’s target floor around 90.78. Sellers actually took the pair as low as 90.27ish before buyers rallied up, taking the pair above the S1 Pivot area on the session and the 38% Fibonacci retracement area of that downswing from 92.05 to 90.24.
At the time of posting, we thought that the falling MA’s may attract technical sellers eyeing the possible new trend lower, but we did acknowledge the risk of a further bounce higher due to the upbeat Chinese Caixin manufacturing PMI data released earlier on the session, U.S. debt deal optimism, and lower odds of a June Fed rate hike.
We did see a brief attempt by AUD/JPY bears to hold the Fibs and Moving averages, but the fresh shift into the risk-on environment proved to be too much, leading to an upside break of that technical area. So this strategy didn’t work out for the bears, but if employing strong risk management practices, it should have been a small hit among some solid strategies this week.
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