Play of the Day Recaps: March 19 – 21, 2024

Our strategists tackled a really tough week of several major central bank events, focusing mainly on the Bank of England event and the Reserve Bank of Australia.

Two out of three discussion were arguably net effective towards positive outcomes. Take a look at our reviews to see what happened and why we expect they were likely helpful!

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On Tuesday, we observed a bearish response to the newest Reserve Bank of Australia (RBA) monetary policy statement, where they held rates of interest regular but their statement struck a less hawkish tone than before.

With that fresh bearish sentiment in play, we paired that with the Swiss franc, which had a serious event coming up, the Swiss National Bank’s monetary policy statement, but expectations were relatively high that they might hold off on any changes (although there was a small argument they might cut).

If Aussie sentiment stayed bearish, then our price motion trigger to look at was a sustained break below the strong support area slightly below the 0.5800 major psychological handle.  We thought that this behavior could potentially attract technical sellers and take the market to the S1, S2, or S3 pivot areas.

AUD/CHF took a tumble below major support, however the move was limited as buying pressure got here in right on the S1 Pivot. Then, out of nowhere, the pair did an entire 180 – no fancy news required. Perhaps it was a whiff of risk appetite within the air, or perhaps those gloomy Swiss economic forecasts got everybody down, making the Aussie look good by comparison. And hey, there was even a whisper concerning the SNB potentially cutting the major rate of interest, adding fuel to the fireplace.

AUD/CHF climbed back into the center of the consolidation range, then suddenly went on a wild ride due to surprisingly good Australian jobs numbers. It smashed through the resistance and kept on running, even before the SNB’s surprise rate cut on Thursday sent it soaring higher.

So, our strategy and price outlook were invalidated with the positive Australian jobs numbers, leading us to consider that this discussion wasn’t supportive of a positive consequence. The positive Australian jobs numbers and upside break of previous consolidation did result in a powerful bullish run, and we hope that a few of you were in a position to catch that.

The Kiwi has been affected by bearish sentiment recently, fueled by a depressing economic outlook from Recent Zealand’s Treasury, which made the approaching release of quarterly NZ GDP a possible market mover.  Market expectations were for the downtrend in economic activty to proceed, which had us leaning bearish on the Recent Zealand dollar this week.

We paired it with the British pound because the GBP/NZD pair has been on a solid uptrend and with with potential volatility coming from the Bank of England’s (BOE) policy decision, we thought there can be loads of short-term opportunities within the pair to look out for. The potential for a shift to more dovish voting patterns throughout the MPC was a scenario we considered, which could bring the pair all the way down to higher buying levels to play the uptrend.

U.K. CPI got here in weaker than expected but wasn’t an enormous momentum driver for the pair, and Recent Zealand GDP dissatisfied however the spike higher in GBP/NZD off of that news was quickly met by sellers.  That response was most definitely a combo of “risk-on” traders after the danger positive response to the FOMC meeting and possibly some traders repositioning Sterling ideas ahead of the BOE event.

The pair actually continued to trend lower leading as much as the highly anticipated BOE event, which come out dovish because the shift in voting did play out as mentioned in our Event Guide and original strategy discussion. The bearish response did bring the pair to the targeted Fibonacci retracement area we were watching to play the uptrend.

Buyers did appear strongly on the Fibs throughout the Friday Asia session, correlating to news of China its every day yuan fix lower than expected, which hurt NZD and AUD, unfortunately this was before the pair could hit our targeted 50% – 61% Fib levels that we thought had the very best probability of drawing in technical buyers given several chart confluences.

Based on our expectation of the BOE event to take the pair to a perfect buying area, that area drawing in buyers (but on an unexpected event from China), and a 100 pip rally at its peak, we’d rate the strategy discussion “neutral to likely.”

We rated it closer to neutral because the market didn’t make all of it the way in which all the way down to the best technical buying area, so individual risk and trade plans would have been a much bigger factor on the consequence. For individuals who can have been aggressive with their entry (or had a scaling plan starting on the 38% Fib), likely did well on this price motion.

On Thursday, we saw that EUR/GBP was in consolidation mode, likely traders staying on the sidelines ahead of the crucial Bank of England (BOE) policy decision and flash manufacturing and services PMIs from each the Euro area and the U.K.  Recent U.K. economic updates have been signaling lower inflation growth trends, which had us leaning within the camp that anticipated a possible shift towards a more dovish stance from the BOE.

The major expectation was that the BOE would still hold rates of interest as the general inflation environment remains to be above the goal, so we thought that traders will likely be closely watching the MPC voting breakdown for clues about future rate moves. If dovish sentiment strengthens throughout the MPC, indicating potential rate cuts, this might fuel a bullish breakout in EUR/GBP.

And vice versa, the potential of lingering hawkishness throughout the BOE, given persistent inflation, was non-zero. If at the least one hawk pushes for a rate hike, or the only real dove shifts to neutral, it could derail expectations of rate cuts, potentially triggering a bullish response in Sterling.

Moreover, we also touched on the upcoming eurozone and U.K. flash PMI readings, which could stir volatility before the BOE event. So we thought it was a great idea to remain prudent and wait for the BOE decision and the market’s response before determining a direction bias and solidify a trade plan.

Euro area and U.K. PMIs were mixed and sparked a net bearish reactions in each the euro and Sterling, but based on our commentary of EUR/GBP, the euro took the larger hit, bringing the pair to the underside of the range around 0.8530. That is where buyers stepped in once more and took the pair higher, breaking the top quality before the BOE event.

And as mentioned above, the BOE event was net bearish for Sterling, due to two previously hawkish members moving to the hold camp. EUR/GBP traded higher from there (likely with the assistance of arguably bearish U.K. retail sales data & net positive German Ifo data) to hit the 0.8600 major psychological level throughout the Friday London session, before being hit with profit taking ahead of the weekend close.

Given our bullish lean, our fundamental and technical arguments were triggered, and the one Day by day ATR move higher after the BOE, we’d rate this discussion on EUR/GBP as highly likely supportive of a positive consequence, as there was likely no need for complex risk and trade management on this particular situation in our opinion. 

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