Our strategists mixed it up this week by specializing in a significant FX pair, an equity index and a currency cross.
One out of three discussions was arguably net effective towards a positive end result, while the opposite two saw neutral outcomes. Try our reviews to see what happened!
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On Tuesday, EUR/USD was at the highest of our watchlist ahead of an energetic forex calendar from the U.S. (including a key U.S. inflation metric — the core PCE price index) and inflation data from the Euro area this week. This momentum shift comes after a period of USD dominance, likely sparked by profit-taking activity. We discussed each bullish and bearish scenarios based on fundamental and technical evaluation.
After our discussion, the EUR/USD sellers steadily outpaced buyers, with a pick up in volatility around mixed but arguably net negative U.S. data. While U.S. durable goods data got here in net positive (latest orders and shipments up after two months of declines), the CB consumer sentiment survey results showed declining optimism in U.S. consumers, a possible signal of slowing activity ahead. The bearish response in EUR/USD could have been a risk aversion move, something we see often when recession worries rise to the highest of focus intraday (i.e., flow to shelter currencies just like the U.S. dollar).
The market proceed to trend lower on Wednesday, and on Thursday, we saw a notable pickup in volatility, surrounding fundamental updates from each the Euro area and the U.S. Weak German retail sales data was likely the catalyst for the swift move lower, and slower than expected growth in Euro area private loans could have been a draw of sellers as well.
The pair did quickly bounce throughout the following U.S. session, again correlating with a bucket of U.S data releases, most notably a greater than expected final U.S. GDP read at 3.4% (vs. 3.2% forecast/previous) and weekly initial jobless claims update. We also got higher than expected revised U.S. consumer sentiment data, all likely prompting traders to cost in a mixture of scenarios ahead, including a “soft landing” and lower odds of aggressive rate cuts ahead.
After these updates, the market resumed its downtrend momentum into the Friday session, where we saw several inflation updates from the Euro area and the U.S. In Europe, France’s preliminary CPI read got here in well below forecast and former reads at 0.2%, and we also saw consumer spending in France are available below expectations at 0.0%.
Within the U.S., the Fed’s favorite inflation gauge (U.S. Core PCE price index) got here inline with expectations at 0.3%, but below the previous read of 0.5%, prompting a fast fall within the U.S. dollar. This was soon followed by comments from Fed Chair Powell at an event in San Francisco, principally re-iterating no rush to chop rates of interest. This quickly turned intraday sentiment on USD and solidify its gains on the week.
In our original discussion our core scenario to observe was a scenario of “if U.S. core durable goods orders data highlights a robust U.S. economy, then EUR/USD could attract sellers at the present inflection point.”
Basically it seems that did play out, and given the prolonged move following that trigger, we’d argue this discussion was likely supportive of a positive end result. But with several more fundamental data points to undergo, including the highly anticipated U.S. core PCE price index release, risk and trade management ideas/execution would have likely had more weight on the potential outcomes on this particular case.
S&P 500 (US500) 1-hour Chart by TradingView
On Wednesday, we turned to the S&P 500 index because it had fallen for several days, creating a possible technical buying opportunity in its massive uptrend. We noted potential volatility catalysts, including FOMC member Christopher Waller’s speech, in addition to Thursday and Friday’s data buckets from the U.S. as we discussed within the EUR/USD.
Our fundamental thought was that it was possible the market could fall as little as the 50% Fib area given the day by day average volatility range if short-term bearish sentiment held, which happened to line up with other technical arguments, including a broken previous resistance area, moving averages and rising ‘lows’ pattern. That was our fundamental watch area to see if technical buyers would hop in, or if the fundies would attract buyers as well.
Well, equity futures jumped ahead of the Wednesday U.S. session close no apparent direct catalysts. Some arguments might be the autumn in U.S. Treasury yields on the session, possible pre-emptive positioning ahead of Fed speeches and U.S. data, and even trend traders continuing to leap in small pullbacks (a pattern we’ve seen just about through 2024).
Regardless of the case could also be, there was no anticipated deep pullback to our goal area of interest for a protracted play, making this discussing neutral towards supporting a positive end result in our opinion. For many who were within the “shallow pullback and buy camp” it’s likely you saw a positive end result, for those who were capable of get in ahead of that Wednesday spike higher before the U.S. session close.
On Thursday, was saw the strong uptrend in CAD/CHF, likely a mirrored image of the Swiss franc’s weakness (triggered by the Swiss National Bank’s unexpected rate of interest cut is a key driver of this upward trend) and a slew of bullish arguments for the Loonie recently (Canada’s positive retail sales figures, rising crude oil prices).
After a period of consolidation, we thought a fresh leg higher might be within the cards, sparked by upcoming Canadian GDP data, which had odds of coming in not only above the previous read, but in addition surprising above expectations, as discussed in our Event Guide. If that scenario played out, we thought that may lower rate cut probabilities for the Bank of Canada, which can attract fundamental CAD bulls.
Well, the Canadian GDP did are available above each expectations and former at 0.6%, but unfortunately this didn’t bring the bullish momentum we were hoping for in CAD/CHF. While the event did bring up the Loonie against the remainder of the majors, the Swiss franc also caught a bid throughout the Thursday U.S. trading session (possibly short profit taking after SNB Vice President Martin Schlegel comments that SNB at all times able to intervene if mandatory). Strength in each currencies cancelled out any possibility of momentum moves in CAD/CHF, which did eventually trade sideways for the remainder of the week.
On condition that our fundamental scenario expectations did trigger a protracted response in CAD, however the resulting price behavior in CAD/CHF was consolidation, we argue that this discussion was also neutral towards supporting positive outcomes.
The basic arguments for selecting CHF because the counter was sound, but we just didn’t catch a break this time around, which happens with any trading market you select, and why risk & trade management is crucial trading skill in the general trading skill set.
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