Our strategists focused on the three major central bank events last week and discussed six potential scenarios and price outlooks around them.
Out of six discussions, 4 arguably saw each fundie & technical arguments triggered to develop into potential candidates for risk management ideas, with two likely being supportive of reaching positive outcomes.
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NZD/CHF 1-hour Forex Chart by TradingView
On Tuesday, our most important goal catalyst was the fast approaching monetary policy statement from the Reserve Bank of Latest Zealand. Expectations were for a possible “non-event” given the risks of an final result supporting each restrictive policy and rate cuts were roughly balanced. In fact, we did note that the RBNZ has a history of peculiar markets, so we had to remain on our toes and be ready for volatility.
We discussed potential outcomes for either side of NZD, with our bull scenario arguing a possible move higher in NZD/CHF, given the rate of interest divergence and if the RBNZ signaled they are going to hold onto a restrictive policy stance.
The event was generally a “non-event” however the RBNZ did say that “a restrictive monetary policy stance stays needed to further reduce capability pressures and inflation” after holding the overnight money rate at 5.50%.
This final result plus the sustained trade above the R1 level triggered a protracted bias, and the market quickly moved to our goal around 0.5485 – 0.5500.
The market actually reversed from there as broad risk sentiment began moving net negative as geopolitical tensions within the Middle East rose and traders began pricing in lower odds of Fed rate cuts in 2024.
NZD/CHF moved lower through the remaining of the week being driven by the broad environment, returning to early April lows before the Friday close.
We’d rate this strategy discussion as “not going” to “neutral” towards achieving a positive final result.
Buying immediately after the RBNZ stayed restrictive was inline with the strategy bias, but broadly holding the pair long without energetic risk management would have yielded negative results.
Actively managed long positions did have possibilities to yield positive outcomes, given the strong bounces from the Fibonacci areas mentioned in the unique strategy discussion.
USD/CAD 1-hour Forex Chart by TradingView
On Wednesday, our most important goal catalyst for the session was the upcoming monetary policy statement from the Bank of Canada, and for bear scenario on the Canadian Dollar, we pair that with a possible bullish move in USD/CAD if U.S. CPI got here in hotter-than-expected.
As everyone knows by now, the U.S. CPI got here in above expectations and former reads, prompting traders to scale back odds of Fed rate cuts in 2024, prompting an enormous rally within the U.S. dollar and USD/CAD ahead of the BOC event.
Soon after, the Bank of Canada (BOC) maintained its overnight rate at 5.00% and kept its quantitative tightening program in April. The final result was actually a bit mixed for traders because the BOC lowered inflation forecasts while raising the GDP outlook.
BOC Governor Macklem did signal that if the economy did evolve inline with their outlook, they could be confident enough to chop rates of interest.
So, the BOC trigger wasn’t 100% clear but they did hit the markets with some dovish rhetoric and a lower inflation outlook. And with U.S. CPI coming in hot, we expect that the elemental triggers for a protracted bias on USD/CAD was arguably there. And with the pair already breaking above the consolidation range, that made the pair a candidate for overlaying a protracted risk management plan.
Provided that USD/CAD moved higher through the remaining of the week following our triggers, we expect the discussion would have been supportive of a potentially positive final result, mainly resulting from U.S. Dollar strength on broad geopolitical risk aversion behavior and falling odds of Fed rate cuts.
EUR/CAD 15-min Forex Chart by TradingView
Our alternative scenario was a possible bullish move within the Canadian dollar if Governor Tiff Macklem and his team mentioned that it’s “too early” to speak rate cuts, and possibly with the assistance of oil’s ability to remain bid resulting from rising Middle East tensions.
We paired this scenario with the euro as there was a possibility of a bearish move if the European Central Bank signaled a possible rate cut in June, as widely expected.
As mentioned in our USD/CAD review above, the BOC held rates at 5.00% and the rhetoric was mixed as they lowered inflation forecasts, signaled an openness to chop, but raised their economic growth numbers. The overall response within the Loonie was actually net bullish, probably on traders not believing we’ll see slowing inflation given the worldwide trends in recent inflation updates.
The ECB did signal that they’ll likely have enough data in June to be confident enough to chop, but reiterated that they can be data dependent moving forward after holding rates regular on Thursday.
These outcomes were arguably enough to trigger our fundamental short bias on EUR/CAD, and on condition that there was a downside break of the S1 (1.4720) and S2 (1.4700) Pivot areas, our full bearish lean was triggered.
With the assistance of rising geopolitical tensions & strong oil rallies to support the Loonie at the tip of the week, EUR/CAD moved lower inline with our short bias, arguably making this discussion supportive of positive outcomes, with no need for complex risk and trade management practices.
EUR/GBP 15-min Forex Chart by TradingView
On Thursday, the European Central Bank’s latest monetary policy statement was the catalyst goal of alternative, and we focused on a possible bearish euro scenario. We paired this with the British pound with the U.K. set to release GDP growth and manufacturing sector data, and if that data got here in above expectations, then EUR/GBP may proceed its recent turn lower in price.
As mentioned above, the ECB held rates and signaled a possible cut in June, promptly bringing in net selling into most euro pairs, including EUR/GBP. The U.K. printed net better-than-expected economic data for February, likely drawing in sellers to the pair as well.
So, each fundamental arguments for the short bias was triggered, and with the market already sustainably trading below the Pivot Point area, our expectation was for a move to the S1 area following the U.K. data.
As seen within the chart above, this bearish move after the U.K. data was short-live as broad risk-off aversion sentiment hit the markets, arguably pushing EUR/GBP on Friday. So, the potential of whether or not this discussion would have result in a positive final result would have highly trusted risk & trade management planning and execution.
For many who took profit quickly on the S1 goal, they potentially did see a positive final result, while those held on a brief through the remaining of the Friday session probably saw a negative final result. Overall, we’d rate this discussion as “neutral” in being supportive towards a positive final result given the choppiness in price motion following the U.K. data.
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